Dependence structure in the Australian electricity markets: New evidence from regular vine copulae

Nicholas Apergis, Giray Gozgor, Chi Keung Marco Lau, Shixuan Wang

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

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.

Original languageEnglish
Article number104834
JournalEnergy Economics
Volume90
DOIs
Publication statusPublished - 1 Jul 2020

Bibliographical note

Funding Information:
We are grateful to the editor and anonymous reviewers for their valuable comments and suggestions, which have led to a significantly improved version of this paper. We would also like to thank Professor Claudia Czado for her helpful discussions on the CFE-CMStatistics December 2018 in Pisa, Italy.

Publisher Copyright:
© 2018 Elsevier B.V.

Copyright:
Copyright 2020 Elsevier B.V., All rights reserved.

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