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Market integration and the persistence of electricity prices

João Pedro Pereira, Vasco Pesquita, Paulo Rodrigues () and António Rua
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João Pedro Pereira: Universidade Nova de Lisboa
Vasco Pesquita: Universidade Nova de Lisboa

Empirical Economics, 2019, vol. 57, issue 5, No 1, 1495-1514

Abstract: Abstract There is an ongoing trend of deregulation and integration of electricity markets in Europe and North America. This change in market structure has naturally affected the interaction between agents and has contributed to an increasing commoditization of electric power. This paper focuses on one specific market, the Iberian electricity market (MIBEL). In particular, we assess the persistence of electricity prices in the Iberian market and test whether it has changed over time. We consider each hour of the day separately, that is, we analyze 24 time series of day-ahead hourly prices for Portugal and another 24 series for Spain. We find results consistent with the hypothesis that market integration leads to a decrease in the persistence of the price process. More precisely, the tests detect a break in the memory parameter of most price series around the year 2009, which coincides with a significant increase in the integration of the Portuguese and Spanish markets. The results reinforce the view that market integration has an impact on the dynamics of electricity prices.

Keywords: Electricity prices; Market integration; Persistence change; Long memory (search for similar items in EconPapers)
JEL-codes: C50 E31 F36 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s00181-018-1520-x

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