The impact of renewable energy forecast errors on imbalance volumes and electricity spot prices

Goodarzi, S, Niles Perera, H and Bunn, D W (2019) The impact of renewable energy forecast errors on imbalance volumes and electricity spot prices. Energy Policy, 134 (110827). ISSN 0301-4215

Abstract

This paper contributes to the general consideration of whether a policy of incentivising improved forecasts for renewable energy outputs, and making them more available in the daily electricity market, would be beneficial. Using data from the German electricity market, we investigate the effect of wind and solar energy forecasts errors on imbalance volumes and intraday spot electricity prices. We use ordinary least square regression, quantile regression and autoregressive moving averages to identify these relationships using variables that have a quarter-hourly data granularity. The results show a positive relationship between wind forecast errors and imbalance volumes. We find that wind forecast errors impact spot prices more than solar forecasting errors. Policy incentives to improve the accuracy and availability of renewable energy forecasts should therefore be encouraged.