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Interconnectedness in the Australian National Electricity Market: A Higher Moment Analysis

Author

Listed:
  • Hung Do
  • Rabindra Nepal
  • Russell Smyth

Abstract

We examine the risk transmission mechanisms in the interconnected Australian National Electricity Market (NEM). We illustrate that the transmission of extreme events in terms of their magnitude (via skewness) and the likelihood of their occurrence (via kurtosis) should be considered when promoting NEM interconnectedness. Our empirical findings suggest that interconnectedness costs can be limited by providing sufficient transmission capacities as it can expand generation capacity. Our results suggest that a one percent increase in NEM generation capacity can decrease the transmission of these risks by between 0.9 percent and 1.7 percent, depending on the moment of the electricity return distribution.

Suggested Citation

  • Hung Do & Rabindra Nepal & Russell Smyth, 2020. "Interconnectedness in the Australian National Electricity Market: A Higher Moment Analysis," CAMA Working Papers 2020-49, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2020-49
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-01/49_2020_do_nepal_smyth-compressed.pdf
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    Citations

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    Cited by:

    1. Hasan, Mudassar & Arif, Muhammad & Naeem, Muhammad Abubakr & Ngo, Quang-Thanh & Taghizadeh–Hesary, Farhad, 2021. "Time-frequency connectedness between Asian electricity sectors," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 208-224.
    2. Rangarajan, Arvind & Svec, Jiri & Foley, Sean & Trück, Stefan, 2025. "Revisiting the crisis: An empirical analysis of the NEM suspension," Energy Economics, Elsevier, vol. 141(C).
    3. Apergis, Nicholas & Pan, Wei-Fong & Reade, James & Wang, Shixuan, 2023. "Modelling Australian electricity prices using indicator saturation," Energy Economics, Elsevier, vol. 120(C).
    4. Do, Hung Xuan & Nepal, Rabindra & Pham, Son Duy & Jamasb, Tooraj, 2024. "Electricity market crisis in Europe and cross border price effects: A quantile return connectedness analysis," Energy Economics, Elsevier, vol. 135(C).
    5. Pham, Son Duy & Do, Hung Xuan & Nepal, Rabindra & Jamasb, Tooraj, 2025. "Tail risk connectedness in the Australian National Electricity Markets: The impact of rare events," Energy Economics, Elsevier, vol. 141(C).
    6. Naeem, Muhammad Abubakr & Karim, Sitara & Rabbani, Mustafa Raza & Nepal, Rabindra & Uddin, Gazi Salah, 2022. "Market integration in the Australian National Electricity Market: Fresh evidence from asymmetric time-frequency connectedness," Energy Economics, Elsevier, vol. 112(C).
    7. Ergemen, Yunus Emre & Haldrup, Niels & Rodríguez-Caballero, Carlos Vladimir, 2016. "Common long-range dependence in a panel of hourly Nord Pool electricity prices and loads," Energy Economics, Elsevier, vol. 60(C), pages 79-96.
    8. Lau, Chi Keung Marco & Wojewodzki, Michal & Dai, Xingyu & Wang, Qunwei, 2025. "Detecting the macro drivers in the Australian National Electricity Market asymmetric volatility co-movement," Energy Economics, Elsevier, vol. 143(C).
    9. Khezr, Peyman & Nepal, Rabindra, 2021. "On the viability of energy-capacity markets under decreasing marginal costs," Energy Economics, Elsevier, vol. 96(C).
    10. Lin Han & Ivor Cribben & Stefan Trueck, 2022. "Extremal Dependence in Australian Electricity Markets," Papers 2202.09970, arXiv.org.

    More about this item

    Keywords

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    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • 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

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