How do changes in settlement periods affect wholesale market prices? Evidence from Australia's National Electricity Market

Zsuzsanna Csereklyei and Peyman Khezr

Energy Economics, 2024, vol. 132, issue C

Abstract: We examine whether a major change in wholesale electricity market price settlement rules in Australia's National Electricity Market (NEM) has resulted in lower electricity prices, potentially benefiting consumers. In October 2021, the NEM transitioned from a 30-min average to a 5-min single period settlement price. We develop a theoretical framework for multiple firms spanning two periods, comparing averaged versus single-period bidding systems. Our findings indicate that strategic bidding behaviour often leads to elevated clearing prices under averaged settlement rules. We support our theoretical findings by empirically analysing the short-term effects of the rule change in the NEM from 1 October 2021 to 31 December 2021. Our analysis reveals that electricity prices were up to 4.9% lower than they would have been without the rule adjustment.

Keywords: Electricity market settlement; Bidding; Australia (search for similar items in EconPapers)
JEL-codes: D4 Q41 Q48 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:132:y:2024:i:c:s0140988324001336

DOI: 10.1016/j.eneco.2024.107425

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