Abstract
This paper examines the impact of solar and wind prices on the Australian electricity spot and options markets for the period January 2006 to March 2018. Using a vector autoregression analysis, we examine both the direction of influence and influence absorption through Granger causality testing, the impulse response function, and forecast error variance decompositions. We identify a unidirectional Granger causal relationship between the solar and wind electricity prices and the spot prices in New South Wales, Queensland, Victoria, and South Australia. The forecast results suggest that the solar and wind electricity prices reduce the spot and options electricity market prices. These results are important for energy policymakers and government organizations that support renewables, as their use not only decreases the wholesale spot prices, but also encourages initiatives to explore and switch to alternative energy sources, which tend to be more cost effective and environmentally friendly.
Highlights
Electricity represents one of the most important resources of every national economy, as it plays an essential role in both economic production and life more generally
When all the inverse roots are within a unit circle, the vector autoregression (VAR) is said to be stable (Lütkepohl, 2006)
Granger causality (GC) Test Results An additional advantage offered by the VAR model concerns its ability to perform GC testing in order to examine the directions of causality among the variables
Summary
Electricity represents one of the most important resources of every national economy, as it plays an essential role in both economic production and life more generally. The direct effect of solar and wind power on the electricity spot and options markets is typically adverse, since renewables allow for the generation of power at very low or even zero marginal cost and displace more costly means of generation. Electricity prices are among the most important contemporary policy issues in Australia, and they represent a critical component of current discussions concerning energy and climate change policies. Several attempts to move forward with energy and climate change policies have been stymied by concerns about potential additional increases in electricity prices. Within this policy debate in Australia, renewable electricity generation is considered to be a fundamental factor influencing electricity prices. Due to the increasing penetration of wind and solar power generation in Australia coinciding with increasing wholesale and retail electricity prices, there is a widely held belief that the wholesale electricity price increases are related to the increased penetration of renewables
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: International Journal of Energy Economics and Policy
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
