Electricity market dynamics: The influence of fuel prices and the spillover effect

Abstract

Fossil energy power generation still plays a key role in the power generation industry, especially for countries where thermal power generation still dominates. With such potential considerable impact, this article aims to analyze the drivers of peak and valley electricity prices from the perspective of thermal power fuel. Specifically, the study uses data from the highly market-oriented US PJM power market to conduct an empirical analysis and focused on the links with coal, crude oil, and natural gas. Applying the Barunik and Krehlik index method to measure the spillover effect, we find that there is an obvious two-way spillover effect between the thermal power fuels and the electricity market. Besides, such an effect mainly occurs in the short time horizon, and natural gas plays a key role in transmitting the information to electricity prices. At last, this paper further builds a connectedness network based on the results of the pairwise spillovers, thereby visually displaying the cross-market connections.

Understanding the Economic Responses to China’s Electricity Price-Cutting Policy: Evidence from Zhejiang Province

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