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Modeling Risk Contagion in the Italian Zonal Electricity Market

Author

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  • Daniel Felix Ahelegbey

    (Università di Pavia)

  • Emmanuel Senyo Fianu

    (University Lüneburg)

  • Luigi Grossi

    (Università di Verona)

Abstract

Ensuring the security of stable, e?cient, and reliable energy supplies has intensi?ed the interconnections among energy markets. Imbalances between supply and demand due to operational failures, congestions and other sources of risk faced by these connections can lead to a system that is vulnerable to the spread of risk and its spill-over. The main contribution of this paper lies in the adoption of recently proposed network models in an innovative way, which enhances the proper analysis of these market connections. The case of the Italian energy market is studied because it is a clear example of a zonal market where risk can spread across connected zones. We estimate within-day and across-day zonal market interconnections with a multivariate time series of hourly prices, forecast demand and wind generation over the period 2010 – 2016 and evaluate the dynamics and persistence of zonal market connections examining the central market and the spread of risk in the zones of the Italian electricity market. Our ?ndings show that models based purely on prices give a better and more accurate explanation of risk contagion than models with exogenous regressors, revealing that the Central North and Central South zones are the most in?uential in terms of hub centrality for intraday and inter-day risk transmission, respectively, in the Italian energy market.

Suggested Citation

  • Daniel Felix Ahelegbey & Emmanuel Senyo Fianu & Luigi Grossi, 2020. "Modeling Risk Contagion in the Italian Zonal Electricity Market," DEM Working Papers Series 182, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0182
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    Cited by:

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    2. Leong, Soon Heng & Urga, Giovanni, 2023. "A practical multivariate approach to testing volatility spillover," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).

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    More about this item

    Keywords

    Bayesian inference; complex networks; energy prices; market e?ciency; systemic risk; volatility; zonal power market;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • 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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G01 - Financial Economics - - General - - - Financial Crises
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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