ARDIAN Faddy

This article empirically investigates the impact of renewable production on congestion using a unique database on the Italian Power Market, where zonal pricing is implemented. We estimate two econometric models: a multinomial logit model, to assess whether renewables increase the occurrence of congestion, and a two stage least squares (2SLS) model to evaluate the impact of wind and photovoltaics on congestion costs. Our analysis suggests that larger renewable supply in importing regions decreases the probability of congestion compared to the no congestion case, while the reverse occurs when renewable production is located in an exporting region. The 2SLS estimations reveal that the same mechanisms explain the level of congestion costs. Our results also highlight that the magnitude of the congestion effects, both in terms of probability and costs, is very sensitive to the location of the historical efficient production, mainly hydro power, and to the geographical configuration of the transmission network.

Deregulation of electricity market has displayed many changes in the economy and has influenced researchers to initiate studies in this field. The issue of the deregulated arises as the volatility of the wholesale price increases because of the new mechanism in price determination. Italy provides an interesting case study for exploring the electricity market because of its specifications. Our project consists of three independent quantitative research to view the Italian electricity market in three different angles. The first study is aimed to address the forecasting issue caused by the volatility of electricity market. The result suggests alternative forecasting method for modelling electricity price on Italy and comparisons between univariate and panel framework. The second research examines the impact of renewable energy on the congestion occurrence and cost. We analyse quantitative properties of the econometric estimation in order to gain insight into the economic mechanism and to draw policy suggestion. Finally, the final research attempts to address the interdependence of prices in six macro-zones of the Italian electricity market.

Deregulation of the electricity market has shown many changes in the economy and has influenced researchers to initiate studies in this area. Italy provides an interesting case study to explore the electricity market because of its specifications. Our project consists of three independent quantitative studies to view the Italian electricity market from three different angles. The first study answers the question of forecasting caused by the volatility of the electricity market. The result suggests an alternative forecasting method for modeling electricity prices in Italy. The second research examines the impact of renewable energy on the occurrence of congestion and its costs. We analyze the quantitative properties of the econometric estimation in order to understand the economic mechanism and derive the policy suggestion. Finally, the final research analyzes the price interdependence in six macro-areas of the Italian electricity market.

The literature demonstrates the likely reduction of wholesale electricity prices due to a larger penetration of renewable energy sources (RES). When markets are organized as two or more inter-connected sub-markets within a larger power market the final impact of increasing RES production may be less straightforward given the presence of network constraints. We tests this phenomenon by analyzing the impact of RES production on the probability of congestion and on the size of congestion cost in Italy. Using a database with hourly observations for a five year period we estimate two econometric models on five zonal pairings: a multinomial logit model for the occurrence and direction of congestion and a three stage least square model for the size of congestion costs. The analysis suggests that the e ffect of a larger local wind and solar supply is to decrease the probability of suff ering congestion in entry and to increase the probability of causing a congestion in exit compared to no congestion case. Increasing hydroelectric production has a similar eff ect. These results hold for both importing and exporting regions, but importing regions are less likely to cause congestion in exit, therefore the installation of new RES capacity in these zones may have a positive eff ects in terms of flow balance between regions. Concerning the cost level, a larger local RES supply seems to push the congestion cost towards negative values as it decreases the marginal cost for balancing the system. This is true for all zones in the case of explicit congestion cost, but it is only verified in importing regions in the case of implicit congestion cost. This result suggests that the increase of RES production should be promoted in importing zones, but the overall growth should be controlled in order to avoid congestion in the opposite direction.

The literature demonstrates the likely reduction of wholesale electricity prices due to a larger penetration of renewable energy sources (RES). When markets are organized as two or more inter-connected sub-markets within a larger power market the final impact of increasing RES production may be less straightforward given the presence of network constraints. We tests this phenomenon by analyzing the impact of RES production on the probability of congestion and on the size of congestion cost in Italy. Using a database with hourly observations for a five year period we estimate two econometric models on five zonal pairings: a multinomial logit model for the occurrence and direction of congestion and a three stage least square model for the size of congestion costs. The analysis suggests that the effect of a larger local wind and solar supply is to decrease the probability of suffering congestion in entry and to increase the probability of causing a congestion in exit compared to no congestion case. Increasing hydroelectric production has a similar effect. These results hold for both importing and exporting regions, but importing regions are less likely to cause congestion in exit, therefore the installation of new RES capacity in these zones may have a positive effects in terms of flow balance between regions. Concerning the cost level, a larger local RES supply seems to push the congestion cost towards negative values as it decreases the marginal cost for balancing the system. This is true for all zones in the case of explicit congestion cost, but it is only verified in importing regions in the case of implicit congestion cost. This result suggests that the increase of RES production should be promoted in importing zones, but the overall growth should be controlled in order to avoid congestion in the opposite direction.