Volatility spillovers in Australian electricity markets

Lin Han, Nino Kordzakhia and Stefan Trück
Authors registered in the RePEc Author Service: Stefan Trueck ()

Energy Economics, 2020, vol. 90, issue C

Abstract: Electricity markets are significantly more volatile than other comparable financial or commodity markets. This study examines volatility spillover effects across different regions in the Australian National Electricity Market (NEM), aiming at providing a better understanding of the transmission of risks in a multi-regional context. Our analysis is based on the econometric framework originally proposed by Diebold and Yilmaz (2009, 2012). We conduct both a static and a dynamic assessment of aggregated spillover effects as well as their directional decomposition between the individual regions. We find that volatility spillovers are typically more pronounced between physically interconnected markets. We further relate the dynamic spillover patterns to specific short-term market events as well as long-term changes in the share of renewable energy, fuel mix, generation capacity, and the implementation of a Carbon Pricing Mechanism. Our findings provide important insights to market participants and regulators with regard to cross-regional trading of electricity, developing risk management strategies, and building additional interconnector infrastructure to facilitate regional market integration in the NEM.

Keywords: Electricity markets; Volatility modelling; Spillover effects; Directional spillovers; Time-varying effects (search for similar items in EconPapers)
JEL-codes: C32 C58 G32 Q41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:90:y:2020:i:c:s0140988320301225

DOI: 10.1016/j.eneco.2020.104782

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