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Assessing the Effects of Solar and Wind Prices on the Australia Electricity Spot and Options Markets Using a Vector Autoregression Analysis

Author

Listed:
  • Yasir Alsaedi

    (Department of Mathematics, Umm Al-Qura University, Makkah, Saudi Arabia,)

  • Gurudeo Anand Tularam

    (Environmental Futures Research Institute, Griffith University, Australia,)

  • Victor Wong

    (Department of Accounting, Finance and Economics, Griffith University, Australia.)

Abstract

This paper examines the impact of solar and wind prices on the Australian electricity spot and options markets for the period January 2006 to March 2018. Using a vector autoregression analysis, we examine both the direction of influence and influence absorption through Granger causality testing, the impulse response function, and forecast error variance decompositions. We identify a unidirectional Granger causal relationship between the solar and wind electricity prices and the spot prices in New South Wales, Queensland, Victoria, and South Australia. The forecast results suggest that the solar and wind electricity prices reduce the spot and options electricity market prices. These results are important for energy policymakers and government organizations that support renewables, as their use not only decreases the wholesale spot prices, but also encourages initiatives to explore and switch to alternative energy sources, which tend to be more cost effective and environmentally friendly.

Suggested Citation

  • Yasir Alsaedi & Gurudeo Anand Tularam & Victor Wong, 2020. "Assessing the Effects of Solar and Wind Prices on the Australia Electricity Spot and Options Markets Using a Vector Autoregression Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 10(1), pages 120-133.
    • Handle: RePEc:eco:journ2:2020-01-18
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    References listed on IDEAS

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    More about this item

    Keywords

    Electricity pricing; Renewable energy; VAR model.;
    All these keywords.

    JEL classification:

    • 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
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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