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Spikes in Power Prices: Unravelling Grid Congestion

Author

Listed:
  • Majah-Leah Ravago

    (Department of Economics, Ateneo de Manila University)

  • Michael R. M. Abrigo

    (Philippine Institute of Development Studies)

  • Patrizia Benedicto

    (ACERD)

  • Nastasha Brigitte Kuan

    (ACERD)

  • J. Kathleen Magadia

    (ACERD)

  • Charlotte Marjorie Relos

    (ACERD)

  • James Roumasset

    (University of Hawaii)

Abstract

How do congestion and disruptions in transmission impact electricity prices? We investigate the impact of congestion on the wholesale spot market prices and the impact of disruption on residential electricity prices. We utilize time-series transmission node-level data on congestion market prices and combine it with other information on the market network data from the independent electricity market operator for our congestion analysis. Treating congestion as an aberration in the system, we apply impulse response analysis to examine the dynamic and cumulative impact of congestion on wholesale electricity spot prices. To examine the impact of disruption on prices, we use distribution unit data submitted to the industry regulator of the Philippines. We exploit an incident in the Visayas that cuts transmission capacity in half causing a disruption in the system as a natural experiment. We employ a synthetic difference-in-differences methodology and examine the effect of this disruption on consumer electricity prices and market concentration. We find that congestions greatly impact market nodal prices, and the effect persists beyond the time of congestion. The impact of the disruption varies by region at the distribution level, possibly explained by the region’s resources and endowment.

Suggested Citation

  • Majah-Leah Ravago & Michael R. M. Abrigo & Patrizia Benedicto & Nastasha Brigitte Kuan & J. Kathleen Magadia & Charlotte Marjorie Relos & James Roumasset, 2024. "Spikes in Power Prices: Unravelling Grid Congestion," Department of Economics, Ateneo de Manila University, Working Paper Series 202401, Department of Economics, Ateneo de Manila University.
    • Handle: RePEc:agy:dpaper:202401
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    More about this item

    Keywords

    Congestion; transmission; electricity prices; Philippines; impulse response function; difference-in-difference;
    All these keywords.

    JEL classification:

    • C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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