A Robust Statistical Analysis of the Role of Hydropower on the System Electricity Price and Price Volatility

TL;DR

This study analyzes how hydropower influences electricity prices and volatility in New England, revealing its stabilizing effect especially during extreme price fluctuations and in the presence of wind and solar resources.

Contribution

It provides a robust, holistic analysis of hydropower's impact on price and volatility, accounting for seasonal and diurnal effects, and highlights its greater influence at extreme price levels.

Findings

Hydropower reduces average electricity prices.

Hydropower significantly stabilizes prices at high quantiles.

Impact of hydropower is more pronounced during extreme price events.

Abstract

Hydroelectric power (hydropower) is unique in that it can function as both a conventional source of electricity and as backup storage (pumped hydroelectric storage) for providing energy in times of high demand on the grid. This study examines the impact of hydropower on system electricity price and price volatility in the region served by the New England Independent System Operator (ISONE) from 2014 - 2020. We perform a robust holistic analysis of the mean and quantile effects, as well as the marginal contributing effects of hydropower in the presence of solar and wind resources. First, the price data is adjusted for deterministic temporal trends, correcting for seasonal, weekend, and diurnal effects that may obscure actual representative trends in the data. Using multiple linear regression and quantile regression, we observe that hydropower contributes to a reduction in the system electricity price and price volatility. While hydropower has a weak impact on decreasing price and volatility at the mean, it has greater impact at extreme quantiles (> 70th percentile). At these higher percentiles, we find that hydropower provides a stabilizing effect on price volatility in the presence of volatile resources such as wind. We conclude with a discussion of the observed relationship between hydropower and system electricity price and volatility.