The asymmetric impact of input prices, the Russia-Ukraine war and domestic policy changes on wholesale electricity prices in India: A quantile autoregressive distributed lag analysis

Abstract

This paper investigates the presence of asymetry in the long-run relationship between wholesale electricity prices (ep) in the day-ahead market and fossil fuel (coal, oil and gas) prices, the exchange rate (er) and economic policy uncertainty (epu) in India, and how the Real-Time Market introduced on 01/06/2020, and the Russia-Ukraine war have affected these relationships. Using daily data from 28/06/2008 to 30/04/2023, and both the quantile auto-regressive distributed lag and the quantile regression methods, we find asymmetric long run relationships, with pronounced and asymmetric impacts in the upper quantiles of ep. Results with the full sample suggest that increases in er and coal significantly raise ep in the upper quantiles; vol and epu have a negative long-term effect on ep. Furthermore, the Real-Time Market has reduced price distortions and brought efficiency to the day-head market. The war increases ep because of supply-chain shockwaves in the input markets. Our results suggest introducing policies aiming at reducing inefficiency to mitigate external shocks.