The volatility of prices in the English and Welsh electricity pool

TitleThe volatility of prices in the English and Welsh electricity pool
Publication TypeJournal Article
AuthorsRobinson, T., and A. Baniak
Journal titleApplied Economics
Year2002
Pages1487 - 1495
Volume34
Issue12
Abstract

The volatility of spot prices has been a notable feature of the English and Welsh Electricity Pool since its formation in 1990. This study investigates the possibility that the volatility of spot prices is strongly affected by the functioning of the contract market for electricity. This paper suggest that generators with market power may have an incentive to create volatility in the spot market in order to benefit from higher risk premia in the contract market. A simple theoretical model is used to illustrate this argument. Nonparametric techniques are used to test for changes in volatility after the expiry of the coal contracts in 1993 and during the price cap of 1994-1996. Strongly significant increases in volatility are found in the latter period.

Languageeng
Notes

Aug; The volatility of prices in the English and Welsh electricity pool

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Unit: 
Department of Economics and Business