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Wind generation and the dynamics of electricity prices in Australia

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  • Mwampashi, Muthe Mathias
  • Nikitopoulos, Christina Sklibosios
  • Konstandatos, Otto
  • Rai, Alan

Abstract

Australia’s National Electricity Market (NEM) is experiencing one of the world’s fastest and marked transitions toward variable renewable energy generation. This transformation poses challenges to system security and reliability and has triggered increased variability and uncertainty in electricity prices. By employing an exponential generalized autoregressive conditional heteroskedasticity (eGARCH) model, we gauge the effects of wind power generation on the dynamics of electricity prices in the NEM. We find that a 1 GWh increase in wind generation decreases daily prices up to 1.3 AUD/MWh and typically increases price volatility up to 2%. Beyond consumption and gas prices, hydro generation also contributes to an increase in electricity prices and their volatility. The cross-border interconnectors play a significant role in determining price levels and volatility dynamics. This underscores the important role of strategic provisions and investment in the connectivity within the NEM to ensure the reliable and effective delivery of renewable energy generation. Regulatory interventions, such as the carbon pricing mechanism and nationwide lockdown restrictions due to COVID-19 pandemic, also had a measurable impact on electricity price dynamics.

Suggested Citation

  • Mwampashi, Muthe Mathias & Nikitopoulos, Christina Sklibosios & Konstandatos, Otto & Rai, Alan, 2021. "Wind generation and the dynamics of electricity prices in Australia," Energy Economics, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:eneeco:v:103:y:2021:i:c:s0140988321004230
    DOI: 10.1016/j.eneco.2021.105547
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    More about this item

    Keywords

    Wind generation; Electricity price volatility; Merit order effect; Hydro generation; Interconnectors; Carbon pricing mechanism; COVID-19;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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