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Testing for market integration in the Australian national electricity market


Nepal, R and Foster, J, Testing for market integration in the Australian national electricity market, The Energy Journal, 37, (4) pp. 215-237. ISSN 0195-6574 (2016) [Refereed Article]

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Copyright 2016 by the IAEE.

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DOI: doi:10.5547/01956574.37.4.rnep


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.

Item Details

Item Type:Refereed Article
Keywords:market liberalisation, electricity restructuring, development, welfare
Research Division:Economics
Research Group:Applied economics
Research Field:Industry economics and industrial organisation
Objective Division:Economic Framework
Objective Group:Microeconomics
Objective Field:Industrial organisations
UTAS Author:Nepal, R (Dr Rabindra Nepal)
ID Code:129849
Year Published:2016
Web of Science® Times Cited:13
Deposited By:TSBE
Deposited On:2018-12-19
Last Modified:2019-01-03

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