Wind Power Volatility and the Impact on Failure Rates in the Nordic Electricity Market

Abstract

Wind power generation of electricity has gained popular support because of its low environmental impact and because of its low costs relative to other renewable energy sources. However, concerns have been raised in the power sector that wind power generation will come with the price of increased damage to other power generators. Wind power generation is naturally volatile which requires other power sources to start up and shut down in accordance with weather conditions, which for instance coal or gas generators are not built to do. The previous literature has used simulations to show that the damage done and the associated costs can be substantial. We use a dataset containing all reported failures in the Scandinavian electricity market Nord Pool and data for Danish wind power generation. The analysis shows that for Denmark the short term costs associated with the volatility of wind power generation are non-significant. Effects are slightly more pronounced for Nord Pool, indicating that the other countries in Nord Pool bear some of the costs for Denmark’s high share of wind power use.