title: An Investigation of the Effects of Solar and Wind Prices on the Australia Electricity Spot and Options Markets: A Time Series Analysis
Creators: name: Alsaedi, Yasir H
Publisher: name: Griffith University
Year: 2021
Subjects: subject: Electricity spot pricing
subject: Electricity option pricing
subject: Solar energy pricing
subject: Wind energy pricing
subject: ARIMA model
subject: GARCH model
subject: Vector autoregression (VAR) models

description: Electricity pricing is recognised as being among the most important contemporary policy issues in Australia, and it also represents a critical component of current discussions concerning energy and climate-change policies. Attempts to move forward with energy and climate-change policies have been mostly stymied by concerns regarding potential increases in electricity prices. In relation to such policy discussions, renewable electricity generation is currently considered to be a fundamental factor influencing electricity prices. Due to the increasing penetration of both wind and solar power generation in Australia, which happens to be coinciding with increasing wholesale and retail electricity prices, there is now a widely held belief that the observed wholesale electricity price increases are related to the increased penetration of renewable energy sources. Overall, the present study aims to investigate the nature and influence of the solar and wind electricity prices on the Australian spot and options markets. To accomplish this aim, the study begins by investigating wind, solar, spot and options pricing and then developing relevant models on the basis of a univariate state-by-state analysis of Australia’s electricity markets. Next, the study investigates the effects of the solar and wind prices on the Australian spot and options markets by means of a multivariate analysis. In addition, the study investigates the impacts of solar and wind pricing on the “global” electricity spot and options markets, with a particular focus on the Australian, German and American electricity markets. Moreover, the study examines how energy companies develop and manage policies concerning electricity production and pricing, as well as the use of solar and wind power, in the Australian markets. More specifically, the first part of this study (Paper 1) involves a univariate analysis of the solar, wind, spot and options electricity prices intended to facilitate a more in-depth understanding of the nature of each variable in terms of forecasting, correlations and volatilities with regard to the Australian electricity markets. Quantitative data concerning the electricity markets in five Australian states, namely New South Wales (NSW), Queensland (QLD), South Australia (SA), Victoria (VIC) and Tasmania (TAS), are considered in this study. The results of the analyses reveal increases of between 30.46% and 40.42% in relation to the spot electricity prices as well as between 14.80% and 15.13% in relation the options electricity prices within the Australian National Electricity Market (ANEM) with a two-year horizon. The results also show that wind prices are expected to increase by an average of 5.43%, while the average solar electricity price is expected to decrease by 67.7%. The second part of this study (Paper 2) involves a multivariate analysis designed to examine the dynamics within the Australian electricity markets, particularly those that may exist between the solar and wind prices and the electricity spot and options markets in each Australian state. The results of the Granger causality analysis indicate there to be a significant unidirectional Granger causal relationship between the solar and wind electricity prices and the spot prices in NSW, QLD, VIC and TAS at the 1% significance level, while in the case of SA, the relationship appears to be significant at less than the 10% level. Moreover, the forecast results suggest that the solar and wind electricity prices reduce the spot and options electricity market prices within the ANEM. The third part of this study (Paper 3) involves a multivariate analysis conducted to investigate the movements within the international electricity markets. The aim was to examine the impacts of the solar and wind prices on the global electricity spot and options markets, with a particular focus on the Australian, German and US or American markets. The results indicate that the electricity markets in Australia, Germany and the United States are interdependent and related to any changes in solar and wind pricing, which means that all the investigated electricity markets are influenced by movements in other electricity markets. The fourth part of this study (Paper 4) involves the application of in-depth qualitative technique of analysis. This part was used to investigate the nature and influence of policies and regulations concerning solar and wind pricing and their relationship to the Australian electricity spot and options markets. The analysis was based on data gathered through interviews conducted with chief executive officers, energy managers and other significant personnel from within the Australian electricity industry. The interviewees’ responses regarding the solar and wind policies that were considered relevant to the Australian electricity markets were analysed, and the “thick and in-depth” content data was derived data from the interviews. This set was then used to examine how their views and personal politics tend to influence pricing within the electricity markets. The results suggest that renewable energy policies lower the electricity prices, reduce the risk for investors and result in larger deployment mechanisms.