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Testing for Market Integration in the Australian National Electricity Market

Author

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  • Rabindra Nepal

    (School of Economics, University of Queensland)

  • John Foster

    (School of Economics, University of Queensland)

Abstract

The National Electricity Market was established in 1998 as a response to the overall deregulation and restructuring of the Australian electricity sector. The wholesale market integration effects of this establishment, however, remain to be examined. We use pairwise unit root tests, cointegration analyses and a time varying coefficient model to determine the level and study the development of market integration in the regionally separate but interconnected markets in Australia. The results from the pairwise unit root tests provide a mixed evidence of price convergence while cointegration analyses does not clearly reject the absence of persistence price differences across the physically interconnected regions. The results from the time-varying coefficient model suggest an integrating market for electricity in Australia although full market integration has not been achieved yet. The results suggest the presence of significant transmission bottlenecks across the inter-regional interconnectors. Our results from cointegration analysis also supports the findings by Gonzalo and Lee (1998) that a proper use of the Johansen cointegration analysis requires a deeper data analysis than just the standard unit root tests.

Suggested Citation

  • Rabindra Nepal & John Foster, 2013. "Testing for Market Integration in the Australian National Electricity Market," Energy Economics and Management Group Working Papers 11-2013, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uqeemg:11-2013
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    References listed on IDEAS

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    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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