How connected is withholding capacity to electricity, fossil fuel and carbon markets? Perspectives from a high renewable energy consumption economy

Chen Liu, Zhen Shao, Jianling Jiao and Shanlin Yang

Energy Policy, 2024, vol. 185, issue C

Abstract: As one kind of market power, withholding capacity infects the electricity, fossil fuel, and carbon markets. Withholding capacity is closely related to renewable energy consumption and is affected by major events. Considering major events and renewable energy consumption, we investigate the transmission mechanism between electricity, fossil fuel, carbon markets, and withholding capacity. Withholding capacity is characterized by time- and frequency-varying and event-triggered. We design a research framework to extract the dynamics of major events from time-frequency domains. The paper attempts to cover extreme scenarios (i.e., climate policy, extreme weather, public health, and global conflict) that exacerbate withholding capacity to the limits. This paper is the first to introduce the information spillover, exploring the transmission mechanism between withholding capacity and renewable energy consumption via time-frequency and major events perspectives. The results illustrate that (i) major events significantly affect the connectedness of withholding capacity to the electricity, fossil fuel, and carbon markets when renewable energy consumption is high; (ii) major events accelerate the shift in the transmission mechanism of withholding capacity from medium- and long-term to short-term timescales. Renewable energy consumption and major events challenge risk management. These findings contribute to designing structural and transitional emergency schemes in the low-carbon electricity market.

Keywords: Information spillover; Market power; Withholding capacity; High renewable energy consumption; Major events; Time-frequency domain (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:185:y:2024:i:c:s0301421523005220

DOI: 10.1016/j.enpol.2023.113937

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