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The Relationship Between Energy Spot And Futures Prices: Evidence From The Australian Electricity Market

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  • Prof. Andrew C. Worthington
  • Helen Higgs

Abstract

This paper examines the relationship between futures and spot electricity prices for two of the Australian electricity regions in the National Electricity Market (NEM): namely, New South Wales and Victoria. A generalized autoregressive conditional heteroskedasticity (GARCH) model is used to identify the magnitude and significance of mean and volatility spillovers from the futures market to the spot market. The results indicate the presence of positive mean spillovers in the NSW market for peak and off-peak (base load) futures contracts and mean spillovers for the off-peak Victorian futures market. The large number of significant innovation and volatility spillovers between the futures and spot markets indicates the presence of strong ARCH and GARCH effects. Contrary to evidence from studies in North American electricity markets, the results also indicate that Australian electricity spot and futures prices are stationary.

Suggested Citation

  • Prof. Andrew C. Worthington & Helen Higgs, 2004. "The Relationship Between Energy Spot And Futures Prices: Evidence From The Australian Electricity Market," The IUP Journal of Applied Economics, IUP Publications, vol. 0(4), pages 65-82, July.
    • Handle: RePEc:icf:icfjae:v:04:y:2004:i:4:p:65-82
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    Cited by:

    1. Mara Madaleno & Carlos Pinho, 2010. "Hedging Performance and Multiscale Relationships in the German Electricity Spot and Futures Markets," JRFM, MDPI, vol. 3(1), pages 1-37, December.
    2. Flottmann, Jonty H. & Akimov, Alexandr & Simshauser, Paul, 2022. "Firming merchant renewable generators in Australia’s National Electricity Market," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 262-276.
    3. Arfaoui, Mongi, 2018. "On the spot-futures relationship in crude-refined petroleum prices: New evidence from an ARDL bounds testing approach," Journal of Commodity Markets, Elsevier, vol. 11(C), pages 48-58.

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