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Changes to Gate Closure and its impact on wholesale electricity prices: The case of the UK

Angelo Facchini, Alessandro Rubino, Guido Caldarelli and Giuseppe Di Liddo

Energy Policy, 2019, vol. 125, issue C, 110-121

Abstract: The electricity supply industry in the United Kingdom underwent a number of regulatory reforms since late 80's that have transformed the trading and pricing of the energy market. Herein we provide empirical evidence that the Modification Proposal P12 (Mod P12) - that took place in 7/2/2002 - moving the Gate Closure (GC) interval from 3.5 h to 1 h before real time has caused a permanent alteration in the UK spot price volatility. Using a combination of Recurrence Plot (RP) and Recurrence Quantification Analysis (RQA) we find that, after the the change in the GC time, short term price volatility significantly decreased between 2001 and 2008 while long term price volatility is not affected by CG change. Similar results are obtained by means of spectral analysis on the price series, showing a significant reduction in its variability. The results of our analysis suggest that a dynamical regime shift of the price occurred, and such shift is linked to the GC change whereby shorter GC intervals facilitate short-term forecasting on electricity demand and better reliability on the supply side. Therefore, GC closer to real time is associated to reduced price fluctuations in the wholesale market.

Keywords: Recurrence Plots; Electricicty markets; Gate Closure UK Spot prices; New Electricity Trading arrangements (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:enepol:v:125:y:2019:i:c:p:110-121