Testing for Market Integration in the Australian National Electricity Market

Rabindra Nepal, John Foster

    Research output: Contribution to journalArticleResearchpeer-review

    Abstract

    The National Electricity Market was established in 1998 as a response to the overall liberalization and restructuring of the Australian electricity sector. The wholesale market integration effects of this establishment, however, remain to be systematically examined. We use econometric techniques based on pairwise unit root tests, cointegration analysis and a time varying coefficient model to study the extent of market integration in the physically interconnected regional markets based on daily electricity spot prices. The results from the pairwise unit root tests provide mixed evidence of price convergence while cointegration analysis does not reject the absence of persistent price differences across the physically interconnected regions. The results from the time-varying filtered coefficient model suggest that full market integration has not been achieved yet. We empirically show the presence of significant network losses and constraints across the interregional interconnectors in the NEM. Our findings suggest that convergence in generation and network ownership, coupled with harmonisation of network regulation and regulatory institutional framework, will be increasingly important factors in improving wholesale market integration across all energy-only markets as they experience an increase in the share of renewable energy.
    Original languageEnglish
    Pages (from-to)215-237
    Number of pages23
    JournalEnergy Journal
    Volume37
    Issue number4
    DOIs
    Publication statusPublished - 2016

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    Testing
    Electricity
    Electricity market
    Market integration
    Power markets
    Time-varying coefficient model
    Unit root tests
    Cointegration analysis
    Liberalization
    Ownership
    Renewable energy
    Harmonization
    Econometrics
    Energy market
    Electricity sector
    Spot price
    Institutional framework
    Price convergence
    Factors

    Cite this

    Nepal, Rabindra ; Foster, John. / Testing for Market Integration in the Australian National Electricity Market. In: Energy Journal. 2016 ; Vol. 37, No. 4. pp. 215-237.
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    Testing for Market Integration in the Australian National Electricity Market. / Nepal, Rabindra; Foster, John.

    In: Energy Journal, Vol. 37, No. 4, 2016, p. 215-237.

    Research output: Contribution to journalArticleResearchpeer-review

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