Wind generation and the dynamics of electricity prices in Australia

Muthe Mathias Mwampashi, Christina Nikitopoulos-Sklibosios (), Otto Konstandatos () and Alan Rai

Energy Economics, 2021, vol. 103, issue C

Abstract: Australia’s National Electricity Market (NEM) is experiencing one of the world’s fastest and marked transitions toward variable renewable energy generation. This transformation poses challenges to system security and reliability and has triggered increased variability and uncertainty in electricity prices. By employing an exponential generalized autoregressive conditional heteroskedasticity (eGARCH) model, we gauge the effects of wind power generation on the dynamics of electricity prices in the NEM. We find that a 1 GWh increase in wind generation decreases daily prices up to 1.3 AUD/MWh and typically increases price volatility up to 2%. Beyond consumption and gas prices, hydro generation also contributes to an increase in electricity prices and their volatility. The cross-border interconnectors play a significant role in determining price levels and volatility dynamics. This underscores the important role of strategic provisions and investment in the connectivity within the NEM to ensure the reliable and effective delivery of renewable energy generation. Regulatory interventions, such as the carbon pricing mechanism and nationwide lockdown restrictions due to COVID-19 pandemic, also had a measurable impact on electricity price dynamics.

Keywords: Wind generation; Electricity price volatility; Merit order effect; Hydro generation; Interconnectors; Carbon pricing mechanism; COVID-19 (search for similar items in EconPapers)
JEL-codes: C22 C58 Q21 Q40 Q42 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:103:y:2021:i:c:s0140988321004230

DOI: 10.1016/j.eneco.2021.105547

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