Market integration and volatility in the Nordic energy exchange
Master thesis
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http://hdl.handle.net/11250/2412462Utgivelsesdato
2016-06Metadata
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- Studentoppgaver (TN-ISØP) [1468]
Sammendrag
This thesis is investigating the level of market integration, as well as the
volatility and inter-relationship in the Nordic spot market. The empirical analysis
is using spot prices from 13 regions in the Nordic energy exchange. The
purpose of the study is to find evidence of market integration between the
system price and the regional price. Further, an assessment of the volatility in
the regions will support the notion of market integration. A bivariate Autoregressive
(AR) model is applied to the price series, and residuals is run through
a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model.
Inference tests are run for hypothesis regarding dynamics and long run integration.
The results show that Nord Pool is not perfectly integrated. The regions in
Scandinavia show strong market integration with the system price. Low average
price and a large, unpredictable price volatility is seen in all the regional
prices in Norway, Sweden, Denmark, and Finland. The Baltic regions show
signs of internal market power, indicating monopolistic production of electrical
energy. The Baltic regions are not fully integrated with the system price.
The results of the AR model support the findings of low market integration in
the Baltic regions and high integration in Scandinavia.
The persistence in the volatility effects in Scandinavia show that volatility
in previous observations have a permanent effect on the volatility level today.
For the Baltic regions, the persistence show a mean-reverting structure where
volatile price movement dampen down until it reaches a stable equilibrium.
Capacity constraints during bottleneck periods cause the area price to deviate
from the system price. Better transmission capacity will lead to a closer
integration between the markets within Nord Pool Spot (NPS).
Beskrivelse
Master's thesis in Industrial economics