Cross-regional effects of renewable power generation on the electricity market: an empirical study on Japan's electricity spot market

We examined the indirect effects of renewable power generated in Tohoku on the electricity spot market in Tokyo, through the channel of cross-regional interconnection. By adopting a two-step regression analysis framework, we investigated how the renewable power generated in Tohoku affects Tokyo's spot price and market volatility. Our results indicate that the electricity spot market is affected not only by within-regional renewable power generation but also by cross-regional transmitted renewable power generation through interconnection. The relatively higher price reduction effect of transmitted power can be attributed to higher price elasticity under a tight supply-demand balance. Our results confirm the cross-regional price stabilization effect of renewable power generation in Tohoku. We attribute the negative effect on realized volatility of Tokyo to the relatively stabler renewable electricity supply from Tohoku. Furthermore, we find that renewable power producers - especially solar power producers - are not incentivized by the fixed-price feed-in tariff to meet electricity demand during peak hours.