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

Apergis, N., Gozgor, G., Lau, C. K. M. and Wang, S. ORCID: https://orcid.org/0000-0003-2113-5521 (2020) Dependence structure in the Australian electricity markets: new evidence from regular vine copulae. Energy Economics, 90. 104834. ISSN 0140-9883 doi: 10.1016/j.eneco.2020.104834

Abstract/Summary

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.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/91246
Item Type	Article
Refereed	Yes
Divisions	Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Publisher	Elsevier
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