Spot and forward markets for electricity in Queensland : an econometric analysis

Martell, Rodrigo Javier. (2005). Spot and forward markets for electricity in Queensland : an econometric analysis Honours Thesis, School of Economics, The University of Queensland.

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Author Martell, Rodrigo Javier.
Thesis Title Spot and forward markets for electricity in Queensland : an econometric analysis
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2005
Thesis type Honours Thesis
Total pages 113
Language eng
Subjects 14 Economics
Formatted abstract
Since its formation in 1998, Australia's National Electricity Market (NEM) has made active both the spot and forward markets for electricity. Due to its inception's recency few econometric studies have been conducted on the NEM. A review of the theories linking the spot to the forward price suggests that the cost-of-carry style relationships are not appropriate for electricity. Instead, the Unbiased Expectations Hypothesis provides a more fitting theory to electricity markets since the underlying commodity is non-storable.

A review of past empirical research suggests co-integration analysis may be used to investigate market efficiency. Further, stemming from industry's interest in the exploration of the joint short run behaviour between the spot and forward markets, an Error-Correction Model is constructed to describe the short run movements of the spot and forward markets after a long run disequilibrium adjustment.

The main conclusion reached is that while co-integration tests suggest the spot and the forward markets are efficient, Error-Correction Models suggest short run one-off shocks in the average daily spot price cannot be used to make meaningful predictions about movements in the forward price. However, the currently rare application of econometrics to the Queensland electricity market exposes some issues that may be addressed and refined by future research. Some areas and problems in electricity short run spot market volatility modelling are also investigated and suggested for further research.

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
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Created: Tue, 30 Nov 2010, 12:23:31 EST by Muhammad Noman Ali on behalf of The University of Queensland Library