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Australian electricity market and price volatility

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Abstract

Australian Electricity Market has experienced high price volatility since the deregulation in early 1990s. In this exploratory and preliminary analysis of 2010 data from South Australian electricity market we identify and exhibit a number of phenomena which, arguably, contribute to (A) high cost of electricity supply to consumers and (B) volatility in spot prices. These phenomena include: (i) Distinct bidding patterns of some generators occurring in trading intervals corresponding to periods of low, medium and high spot prices, (ii) Low correlation between electricity demand and spot prices on days when spot price spikes are observed, (iii) Failure of the lottery model and associated Markowitz-type optimisation approaches to adequately explain the shifting structure of generators’ bids and (iv) Unexpectedly high contribution to the consumers costs and risks from the relatively small number of trading intervals where spot price spikes were observed.

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Notes

  1. Strictly speaking, the word “band” is misnomer because it refers to a single price rather than a range of prices. However, we continue to use it, as it has become standard in documents describing the Australian electricity market.

  2. Recall that this is only a surrogate for the generator’s true income.

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Authors and Affiliations

  1. Barbara Hardy Institute and School of Mathematics and Statistics, The University of South Australia, Mawson Lakes, SA, 5095, Australia

    J. Boland & A. Nazari

  2. School of Computer Science, Engineering and Mathematics, Flinders University, Bedford Park, SA, 5042, Australia

    J. A. Filar & G. Mohammadian

Authors
  1. J. Boland
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  2. J. A. Filar
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  3. G. Mohammadian
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  4. A. Nazari
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Correspondence to J. A. Filar.

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Boland, J., Filar, J.A., Mohammadian, G. et al. Australian electricity market and price volatility. Ann Oper Res 241, 357–372 (2016). https://doi.org/10.1007/s10479-011-1033-x

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