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Dependence structure in the Australian electricity markets: New evidence from regular vine copulaeApergis, Nicholas; Gozgor, Giray; Lau, Chi Keung; Wang, Shixuan; University of Derby; Istanbul Medeniyet University; University of Huddersfield; University of Reading (Elsevier, 2020-07-01)In this study, regular vine copula was used to investigate the dependence structure of electricity prices at the state level in the Australian National Electricity Market (NEM), during three periods related to the adoption and abolition of the carbon tax. In the pre-carbon period, we found evidence of tail dependence separately in the northern and southern NEM, but not across them. During the carbon period, the joint spike in the northern NEM disappeared, and the tail dependence in the southern NEM decreased. In the post-carbon period, the best dependence structure turned out to be a flexible structure of the regular vine, which exactly matches the geographical infrastructure connectedness of transmission wires. Besides, both upper and lower tail dependences were found in all adjacent states after the abolition of the carbon tax, suggesting a more integrated market regarding tail dependence. Our findings have substantial implications for risk management in the NEM, especially for those participants exposed to multiple states.
Structural breaks and electricity prices: Further evidence on the role of climate policy uncertainties in the Australian electricity market.Apergis, Nicholas; Lau, Chi Keung; University of Piraeus; Northumbria University (Elsevier., 2015-10-31)The primary objectives and the strategies of a national electricity market are the efficient delivery of network services and the electricity infrastructure to meet the long-term consumer's interests. Therefore, the objective of this study is to explore whether electricity prices across the six Australian States display instability. Such instability is closely associated with the presence of structural breaks in relevance to policy events on Australian carbon policies. The study makes use of weekly Australian wholesale electricity prices spanning the period from June 8th, 2008 to March 30th, 2014 along with linear and non-linear unit root testing methodologies. The results provide supportive evidence that the Australian electricity market can be described as a less stable electricity market, which implies that a high degree of market power is exercised by generators across regional markets. These findings are expected to have substantial consequences for the effectiveness of carbon dioxide mitigating policies, especially, when there is uncertainty as to whether the planned environmental policy is put in place for the lifespan of undertaken investments.