Volatility Spillovers in Electricity Markets: Evidence From the United States

Abstract

This paper examines the degree of market integration, as observed by measuring volatility spillovers, in selected wholesale electricity spot markets from United States. We choose markets located at interconnected and non-interconnected areas. We use a Multivariate GARCH framework, which allows us to model time varying correlations and to conclude whether the markets show evidence of interdependency. We estimate the variance-covariance and correlation structure, in order to observe the evolution of interactions among markets, accounting for asymmetric effects. We find evidence of significant correlations between interconnected markets, which are mainly due to electricity transmission, since the observed correlations are above 0.5, but our results show that the desired level of integration has not been accomplished yet. Nevertheless, full integration is not an objective target, unless new technologies offer a boost towards that direction. Our results suggest that we should move towards a more integrated market, through legislation reforms and investment in infrastructure, which could increase competition and could lead to capital savings through lower electricity prices. The unique selection of the markets under examination and the 4-variate BEKK model for electricity markets are special characteristics of this paper.

Electricity market integration, decarbonisation and security of supply: Dynamic volatility connectedness in the Irish and Great Britain markets

“…The findings on volatility connectedness also further allows the the study of the differences in volatility across interconnected electricity markets and documents whether price volatility across those markets is high and (or) persistent either in wholesale electricity markets (Apergis et al, 2017b). Thus, the literature on the volatility connectedness in electricity markets is emerging and our study contributes to such emergence (Worthington et al, 2005;Higgs, 2009;Pen and Sevi, 2010;Bauwens et al 2013;Pantos et al, 2019). Andersen et al (2001Andersen et al ( , 2003 and Barndorff-Nielsen (2002) proposed a novel approach to construct realized volatility (RV, hereafter) non-parametrically using intra-day prices.…”

Electricity Market Integration, Decarbonisation and Security of Supply: Dynamic Volatility Connectedness in the Irish and Great Britain Markets

“…The findings on volatility connectedness also further allows the the study of the differences in volatility across interconnected electricity markets and documents whether price volatility across those markets is high and (or) persistent either in wholesale electricity markets (Apergis et al, 2017b). Thus, the literature on the volatility connectedness in electricity markets is emerging and our study contributes to such emergence (Worthington et al, 2005;Higgs, 2009;Pen and Sevi, 2010;Bauwens et al 2013;Pantos et al, 2019). Andersen et al (2001Andersen et al ( , 2003 and Barndorff-Nielsen (2002) proposed a novel approach to construct realized volatility (RV, hereafter) non-parametrically using intra-day prices.…”

Interconnected Markets: Unveiling Volatility Spillovers in Commodities and Energy Markets through BEKK-GARCH Modelling

“…Pantos identifies factors affecting energy price volatility, including political policies, oil and gas output levels, decreased nuclear power usage, and increased reliance on sustainable sources [29]. Policies and regulations aim to improve market integration in managing energy price volatility, reducing uncertainties and volatility spillover [23].…”