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Market integration in the Australian National Electricity Market: Fresh evidence from asymmetric time-frequency connectedness

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  • Naeem, Muhammad Abubakr
  • Karim, Sitara
  • Rabbani, Mustafa Raza
  • Nepal, Rabindra
  • Uddin, Gazi Salah

Abstract

Australian National Electricity Market (NEM) provides efficient and smooth electricity transmission via a unique integration mechanism of different Australian regional electricity markets. We, therefore, examined the asymmetric time-frequency connectedness across five physically interconnected Australian regional electricity markets in the NEM using daily wholesale price data from 17 May 2005 to 31 December 2020. Due to direct physical interconnections and close geographical vicinities, Australian regional electricity markets have more connectedness within the region than across regions. The results of deseasonalized data revealed high spillovers among electricity markets during a crisis event, periods of abnormal weather, and regulatory sanctions implied on the NEM, which the findings from previous studies have not fully captured. Meanwhile, seasonality-adjusted results using X 13-ARIMA method highlighted dominance of negative spillovers both in the short- and long-run. Moreover, reforms in electricity policies by the Australian government played a significant role in shaping the total spillover index. Our study offers fresh insights on the NEM and stipulates significant policy implications for NEM, which the Australian state and federal government, policymakers, investors, retailers, and power suppliers must consider.

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  • Naeem, Muhammad Abubakr & Karim, Sitara & Rabbani, Mustafa Raza & Nepal, Rabindra & Uddin, Gazi Salah, 2022. "Market integration in the Australian National Electricity Market: Fresh evidence from asymmetric time-frequency connectedness," Energy Economics, Elsevier, vol. 112(C).
    • Handle: RePEc:eee:eneeco:v:112:y:2022:i:c:s0140988322003000
    DOI: 10.1016/j.eneco.2022.106144
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    3. Do, Hung Xuan & Nepal, Rabindra & Pham, Son Duy & Jamasb, Tooraj, 2023. "Electricity Market Crisis in Europe and Cross Border Price Effects: A Quantile Return Connectedness Analysis," Working Papers 8-2023, Copenhagen Business School, Department of Economics.

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