Electricity spot price behavior: insights into the NZEM

Abstract

This thesis uses the observed behavior of high frequency electricity spot prices to examine a range of issues in the New Zealand Electricity Market (NZEM). It develops a new approach which treats electricity delivered at different times of the day as different commodities. The analysis reveals intrinsic correlation properties that indicate the existence of distinct intra-day markets. As these properties have important implications for the stochastic modelling of high frequency electricity spot prices, a state space model is developed that preserves this intra-day market structure. The multiple commodity approach is then combined with factor analysis to investigate the integration of the NZEM. In a pool market, like the NZEM, competition is maximized when the market is integrated. The analysis suggests that, while there is evidence that the NZEM is susceptible to segment along North/South lines during certain periods, the overall economic significance of this segmentation is low.