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Australian evidence on the role of interregional flows, production capacity, and generation mix in wholesale electricity prices and price volatility

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  • Higgs, Helen
  • Lien, Gudbrand
  • Worthington, Andrew C.

Abstract

This paper examines the impact of interregional flows, production capacity and generation mix, encompassing both fossil fuels (black and brown coal and natural gas) and renewables (hydropower and wind power), on daily wholesale electricity price volatility across the five regional electricity markets in the Australian National Electricity Market from January 2006 to June 2012. One objective is to examine the volatility impacts of daily interregional energy flows when regions are exporting and importing electricity and daily slack (excess daily capacity) produced by differences in generation capacity and actual generation. Another is to gain insights into the emergent effects of policy and industry developments regarding the choice of generation on price volatility. Using Student panel common and fixed-effects generalized autoregressive conditional heteroscedasticity (GARCH) specifications, we find that the type of generation exerts a strong influence on prices and price volatility, with prices increasing for open-cycle gas turbine and hydro generation and decreasing for black coal generation. We also find increasing price volatility for black coal, open-cycle gas turbine, and hydro generation, and decreasing price volatility for combined-cycle gas turbine generation. Interregional flows appear to exert no significant influence on prices or price volatility, while generation slack tends to reduce prices, but has no effect on price volatility.

Suggested Citation

  • Higgs, Helen & Lien, Gudbrand & Worthington, Andrew C., 2015. "Australian evidence on the role of interregional flows, production capacity, and generation mix in wholesale electricity prices and price volatility," Economic Analysis and Policy, Elsevier, vol. 48(C), pages 172-181.
    • Handle: RePEc:eee:ecanpo:v:48:y:2015:i:c:p:172-181
    DOI: 10.1016/j.eap.2015.11.008
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    Cited by:

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    3. Fontini, Fulvio & Vargiolu, Tiziano & Zormpas, Dimitrios, 2021. "Investing in electricity production under a reliability options scheme," Journal of Economic Dynamics and Control, Elsevier, vol. 126(C).
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    5. Apergis, Nicholas & Gozgor, Giray & Lau, Chi Keung Marco & Wang, Shixuan, 2019. "Decoding the Australian electricity market: New evidence from three-regime hidden semi-Markov model," Energy Economics, Elsevier, vol. 78(C), pages 129-142.
    6. Hung Do & Rabindra Nepal & Russell Smyth, 2020. "Interconnectedness in the Australian National Electricity Market: A Higher‐Moment Analysis," The Economic Record, The Economic Society of Australia, vol. 96(315), pages 450-469, December.
    7. Shantanu Chakraborty & Remco Verzijlbergh & Kyri Baker & Milos Cvetkovic & Laurens De Vries & Zofia Lukszo, 2020. "A Coordination Mechanism For Reducing Price Spikes in Distribution Grids," Energies, MDPI, vol. 13(10), pages 1-24, May.
    8. Pawel Maryniak & Stefan Trueck & Rafal Weron, 2016. "Carbon pricing, forward risk premiums and pass-through rates in Australian electricity futures markets," HSC Research Reports HSC/16/10, Hugo Steinhaus Center, Wroclaw University of Technology.
    9. Unger, Elizabeth A. & Ulfarsson, Gudmundur F. & Gardarsson, Sigurdur M. & Matthiasson, Thorolfur, 2018. "The effect of wind energy production on cross-border electricity pricing: The case of western Denmark in the Nord Pool market," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 121-130.
    10. Barsha Nibedita & Mohd Irfan, 2022. "Non-linear cointegration between wholesale electricity prices and electricity generation: an analysis of asymmetric effects," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(1), pages 285-303, February.

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    More about this item

    Keywords

    Electricity generation; Generation mix; Generation capacity; Regional interconnection; Price and price volatility; Panel common and fixed effects GARCH;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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