IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v34y2012i6p2058-2065.html
   My bibliography  Save this article

Price and volatility dynamics between electricity and fuel costs: Some evidence for Spain

Author

Listed:
  • Furió, Dolores
  • Chuliá, Helena

Abstract

The purpose of this study is to investigate the causal linkages between the Spanish electricity, Brent crude oil and Zeebrugge (Belgium) natural gas 1-month-ahead forward prices. Following Lütkepohl et al. (2004), we control for the presence of a structural change in the series and then we use the Johansen cointegration test and a vector error correction model (VECM) to embrace the analysis. Additionally, a multivariate generalized autoregressive conditional heteroskedastic (GARCH) model is applied to explore volatility interactions between the three markets involved in the study. Our findings reveal that Brent crude oil and Zeebrugge natural gas forward prices play a prominent role in the Spanish electricity price formation process. Furthermore, causation, both in price and volatility, runs from Brent crude oil and natural gas forward markets to the Spanish electricity forward market. These results are of practical importance for both the wholesale and retail markets' participants as well as the regulator through the established link between the forward contracts' price and the Spanish tariff of last resort paid by more than 23million of customers.

Suggested Citation

  • Furió, Dolores & Chuliá, Helena, 2012. "Price and volatility dynamics between electricity and fuel costs: Some evidence for Spain," Energy Economics, Elsevier, vol. 34(6), pages 2058-2065.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:2058-2065
    DOI: 10.1016/j.eneco.2012.02.014
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988312000424
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2012.02.014?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
    2. Javier Estrada & Ole Fugleberg, 1989. "Price Elasticities of Natural Gas Demand in France and West Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 77-90.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. repec:clg:wpaper:1999-04 is not listed on IDEAS
    5. Mohammadi, Hassan, 2009. "Electricity prices and fuel costs: Long-run relations and short-run dynamics," Energy Economics, Elsevier, vol. 31(3), pages 503-509, May.
    6. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    7. Sen, Amit, 2003. "On Unit-Root Tests When the Alternative Is a Trend-Break Stationary Process," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 174-184, January.
    8. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. "On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    9. Mjelde, James W. & Bessler, David A., 2009. "Market integration among electricity markets and their major fuel source markets," Energy Economics, Elsevier, vol. 31(3), pages 482-491, May.
    10. repec:ebl:ecbull:v:3:y:2003:i:11:p:1-9 is not listed on IDEAS
    11. Carsten Trenkler, 2003. "A new set of critical values for systems cointegration tests with a prior adjustment for deterministic terms," Economics Bulletin, AccessEcon, vol. 3(11), pages 1-9.
    12. Apostolos Serletis & John Herbert, 2007. "The Message in North American Energy Prices," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 13, pages 156-171, World Scientific Publishing Co. Pte. Ltd..
    13. Helmut Lütkepohl & Pentti Saikkonen & Carsten Trenkler, 2004. "Testing for the Cointegrating Rank of a VAR Process with Level Shift at Unknown Time," Econometrica, Econometric Society, vol. 72(2), pages 647-662, March.
    14. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    15. Soderholm, Patrik, 2000. "Fuel flexibility in the West European power sector," Resources Policy, Elsevier, vol. 26(3), pages 157-170, September.
    16. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    17. Apostolos Serletis & Akbar Shahmoradi, 2007. "Measuring and Testing Natural Gas and Electricity Markets Volatility: Evidence from Alberta's Deregulated Markets," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 16, pages 205-220, World Scientific Publishing Co. Pte. Ltd..
    18. Kroner, Kenneth F & Ng, Victor K, 1998. "Modeling Asymmetric Comovements of Asset Returns," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 817-844.
    19. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2010. "Long-run relations in european electricity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 805-832.
    20. Ewing, Bradley T. & Malik, Farooq & Ozfidan, Ozkan, 2002. "Volatility transmission in the oil and natural gas markets," Energy Economics, Elsevier, vol. 24(6), pages 525-538, November.
    21. Muñoz, M. Pilar & Dickey, David A., 2009. "Are electricity prices affected by the US dollar to Euro exchange rate? The Spanish case," Energy Economics, Elsevier, vol. 31(6), pages 857-866, November.
    22. LaCasse, Chantale & Wininger, Thomas, 2007. "Maryland versus New Jersey: Is There a "Best" Competitive Bid Process?," The Electricity Journal, Elsevier, vol. 20(3), pages 46-59, April.
    23. Frank Asche & Petter Osmundsen & Maria Sandsmark, 2006. "The UK Market for Natural Gas, Oil and Electricity: Are the Prices Decoupled?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 27-40.
    24. Kearney, Colm & Patton, Andrew J, 2000. "Multivariate GARCH Modeling of Exchange Rate Volatility Transmission in the European Monetary System," The Financial Review, Eastern Finance Association, vol. 35(1), pages 29-48, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Moreno, Manuel & Novales, Alfonso & Platania, Federico, 2019. "Long-term swings and seasonality in energy markets," European Journal of Operational Research, Elsevier, vol. 279(3), pages 1011-1023.
    2. de Menezes, Lilian M. & Houllier, Melanie A. & Tamvakis, Michael, 2016. "Time-varying convergence in European electricity spot markets and their association with carbon and fuel prices," Energy Policy, Elsevier, vol. 88(C), pages 613-627.
    3. Moon, Jongwoo & Jung, Tae Yong, 2020. "A critical review of Korea's long-term contract for renewable energy auctions: The relationship between the import price of liquefied natural gas and system marginal price," Utilities Policy, Elsevier, vol. 67(C).
    4. Ohler, Adrienne & Mohammadi, Hassan & Loomis, David G., 2020. "Electricity restructuring and the relationship between fuel costs and electricity prices for industrial and residential customers," Energy Policy, Elsevier, vol. 142(C).
    5. Alexopoulos, Thomas A., 2017. "The growing importance of natural gas as a predictor for retail electricity prices in US," Energy, Elsevier, vol. 137(C), pages 219-233.
    6. Asche, Frank & Misund, Bård & Sikveland, Marius, 2013. "The relationship between spot and contract gas prices in Europe," Energy Economics, Elsevier, vol. 38(C), pages 212-217.
    7. Naeem, Muhammad Abubakr & Arfaoui, Nadia, 2023. "Exploring downside risk dependence across energy markets: Electricity, conventional energy, carbon, and clean energy during episodes of market crises," Energy Economics, Elsevier, vol. 127(PB).
    8. He, Yongxiu & Liu, Yangyang & Wang, Jianhui & Xia, Tian & Zhao, Yushan, 2014. "Low-carbon-oriented dynamic optimization of residential energy pricing in China," Energy, Elsevier, vol. 66(C), pages 610-623.
    9. Mohammad Althaqafi, 2023. "The Impact of Natural Gas Prices on Electricity Tariffs in the UK," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 86-91, March.
    10. Stefan Thoenes, 2014. "Understanding the Determinants of Electricity Prices and the Impact of the German Nuclear Moratorium in 2011," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    11. Zhang, Bing & Wang, Peijie, 2014. "Return and volatility spillovers between china and world oil markets," Economic Modelling, Elsevier, vol. 42(C), pages 413-420.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nakajima, Tadahiro & Hamori, Shigeyuki, 2013. "Testing causal relationships between wholesale electricity prices and primary energy prices," Energy Policy, Elsevier, vol. 62(C), pages 869-877.
    2. Themistoclis Pantos & Stathis Polyzos & Aggelos Armenatzoglou & Ilias Kampouris, 2019. "Volatility Spillovers in Electricity Markets: Evidence from the United States," International Journal of Energy Economics and Policy, Econjournals, vol. 9(4), pages 131-143.
    3. Chae, Yeoungjin & Kim, Myunghwan & Yoo, Seung-Hoon, 2012. "Does natural gas fuel price cause system marginal price, vice-versa, or neither? A causality analysis," Energy, Elsevier, vol. 47(1), pages 199-204.
    4. Ewing, Bradley T. & Malik, Farooq & Ozfidan, Ozkan, 2002. "Volatility transmission in the oil and natural gas markets," Energy Economics, Elsevier, vol. 24(6), pages 525-538, November.
    5. Chor Foon Tang, 2015. "How Stable is the Savings-led Growth Hypothesis in Malaysia? The Bootstrap Simulation and Recursive Causality Tests," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 9(1), pages 1-17, February.
    6. Chor Foon Tang and Eu Chye Tan, 2012. "Electricity Consumption and Economic Growth in Portugal: Evidence from a Multivariate Framework Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    7. de Menezes, Lilian M. & Houllier, Melanie A. & Tamvakis, Michael, 2016. "Time-varying convergence in European electricity spot markets and their association with carbon and fuel prices," Energy Policy, Elsevier, vol. 88(C), pages 613-627.
    8. Tadahiro Nakajima, 2019. "Expectations for Statistical Arbitrage in Energy Futures Markets," JRFM, MDPI, vol. 12(1), pages 1-12, January.
    9. Tang, Chor Foon, 2010. "Savings-led growth theories: A time series analysis for Malaysia using the bootstrapping and time-varying causality techniques," MPRA Paper 27299, University Library of Munich, Germany.
    10. Xia, Tongshui & Ji, Qiang & Geng, Jiang-Bo, 2020. "Nonlinear dependence and information spillover between electricity and fuel source markets: New evidence from a multi-scale analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 537(C).
    11. Mohammad Althaqafi, 2023. "The Impact of Natural Gas Prices on Electricity Tariffs in the UK," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 86-91, March.
    12. Moutinho, Victor & Vieira, Joel & Carrizo Moreira, António, 2011. "The crucial relationship among energy commodity prices: Evidence from the Spanish electricity market," Energy Policy, Elsevier, vol. 39(10), pages 5898-5908, October.
    13. Tang, Chor Foon, 2008. "Is inflation always a monetary phenomenon in Malaysia?," MPRA Paper 19778, University Library of Munich, Germany.
    14. Anders Johansson, 2009. "An analysis of dynamic risk in the Greater China equity markets," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 7(3), pages 299-320.
    15. Tang, Chor Foon & Tan, Eu Chye, 2015. "Does tourism effectively stimulate Malaysia's economic growth?," Tourism Management, Elsevier, vol. 46(C), pages 158-163.
    16. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
    17. Muñoz, M. Pilar & Dickey, David A., 2009. "Are electricity prices affected by the US dollar to Euro exchange rate? The Spanish case," Energy Economics, Elsevier, vol. 31(6), pages 857-866, November.
    18. Tsangyao Chang & Yuan-Hong Ho, 2002. "A Note on Testing ¡°Tax-and-Spend, Spend-and-Tax or Fiscal Synchronization¡±: The Case of China," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(1), pages 151-160, June.
    19. Efimova, Olga & Serletis, Apostolos, 2014. "Energy markets volatility modelling using GARCH," Energy Economics, Elsevier, vol. 43(C), pages 264-273.
    20. Tang, Chor Foon, 2011. "Tourism, real output and real effective exchange rate in Malaysia: a view from rolling sub-samples," MPRA Paper 29379, University Library of Munich, Germany.

    More about this item

    Keywords

    Natural gas; Oil; Electricity; Cointegration; Volatility transmission;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:2058-2065. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.