Contagions in interconnected power markets
ISSN: 1526-5943
Article publication date: 4 October 2021
Issue publication date: 19 November 2021
Abstract
Purpose
This paper offers an alternative approach to assessing contagions in price and load in the Australian interconnected power markets. This approach enabled us to identify a high-risk region and assess the direction of contagions from both buyers' and sellers' perspectives.
Design/methodology/approach
The author used a multinomial logit method to measure contagions. Having identified the exceedance and coexceedances, the author estimated the multinomial logit coefficients of the covariates explaining the probability of a certain number of coexceedances.
Findings
Market participants should recognize the presence of contagion risk and scrutinize price and load dynamics in the NSW and VIC regions to anticipate any simultaneous extreme changes. Regulators need to stabilize the demand and supply sides in those regions to minimize any possible contagions.
Originality/value
This paper presents a pioneering study investigating contagion in the Australian interconnected power markets.
Keywords
Acknowledgements
The author would like to thank Stefan Trück, Olaf Korn, Charlotte Christiansen, seminar participants at 2nd Australasian Commodity Markets Conference, Institute for International Strategy Tokyo International University, Chair of Finance at Georg-August-Universität Göttingen and 2018 INFINITI Conference on International Finance, two referees and the (associate) editor of the Journal of Risk Finance who provide valuable comments and suggestions to improve the quality of the manuscript.
Conflict of interest: The author declares that there is no conflict of interest.
Citation
Handika, R. (2021), "Contagions in interconnected power markets", Journal of Risk Finance, Vol. 22 No. 3/4, pp. 296-311. https://doi.org/10.1108/JRF-01-2021-0002
Publisher
:Emerald Publishing Limited
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