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Title: Electricity Market Interconnections and Electricity Price Volatility
Author: Fonseca, Nuno
Duque, João
Keywords: Electricity Price Modelling
Price Returns Volatility
Physical Electricity Market
Issue Date: Nov-2008
Publisher: ISEG - ADVANCE
Citation: Fonseca, Nuno e João Duque. 2008. "Electricity Market Interconnections and Electricity Price Volatility". Instituto Superior de Economia e Gestão – ADVANCE Working paper nº 7/2008
Series/Report no.: ADVANCE Working paper;nº 7/2008
Abstract: In this paper, we present a model of changes in electricity price returns in the context of interconnected electricity markets. This model predicts an inverse relationship between the increase in interconnection capacity and the volatility of price returns in the corresponding electricity markets. This means that an increase of interconnection between two markets leads to a decrease in the volatility of their prices. We support our model with empirical results from the Australian, European and USA electricity markets. The results suggest that this inverse relationship between interconnection and volatility exists, meaning that when markets tend to be physically interconnected, variance tends to be reduced.
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Appears in Collections:ADVANCE - Working Papers
DG - Documentos de trabalho / Working Papers

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