Wind Generation Influence on Market Splitting: The Iberian Spot Electricity Market

This paper aims to assess the influence of wind power generation on the market splitting behaviour of the Iberian electricity spot markets. Iberia stands as an ideal case study, where the high level deployment of wind power is observed, together with an early implementation of the market splitting mechanism between the Portuguese and the Spanish spot electricity markets. Non-parametric models are used to express the probability response for market splitting of day-ahead spot electricity prices as a function of wind and hydro power, together with the available transmission capacity and electricity demand. Nonparametric models overcome known limitations of previously used parametric models, providing additional detail and more efficiently. Model results show that there is an increase of market splitting probability with simultaneous higher wind and hydro power generation and lower available transfer capacity, suggesting that cross-border interconnection development should be linked to the increase in renewable power installation capacity, both current and forecasted.