Market Integration and the Persistence of Electricity Prices

22 Pages Posted: 19 Jun 2018

See all articles by João Pedro Pereira

João Pedro Pereira

Nova School of Business and Economics

Vasco Pesquita

New University of Lisbon - Nova School of Business and Economics

Paulo M.M. Rodrigues

Banco de Portugal

Antonio Rua

Bank of Portugal - Economic Research Department

Date Written: October 1, 2017

Abstract

There is an ongoing trend of deregulation and integration of electricity markets in Europe and North America. This change in market structure has naturally affected the interaction between agents and has contributed to an increasing commoditization of electric power. This paper focuses on one specific market, the Iberian Electricity Market (MIBEL). In particular, we assess the persistence of electricity prices in the Iberian market and test whether it has changed over time. We consider each hour of the day separately, that is, we analyze 24 time-series of day-ahead hourly prices for Portugal and another 24 series for Spain. We find results consistent with the hypothesis that market integration leads to a decrease in the persistence of the price process. More precisely, the tests detect a break in the memory parameter of most price series around the year 2009, which coincides with a significant increase in the integration of the Portuguese and Spanish markets. The results reinforce the view that market integration has an impact on the dynamics of electricity prices.

Keywords: electricity prices, market integration, persistence change, long memory

JEL Classification: C50, E31, F36

Suggested Citation

Pereira, João Pedro S.S. and Pesquita, Vasco and Marques Rodrigues, Paulo Manuel and Rua, Antonio, Market Integration and the Persistence of Electricity Prices (October 1, 2017). Available at SSRN: https://ssrn.com/abstract=3193994 or http://dx.doi.org/10.2139/ssrn.3193994

João Pedro S.S. Pereira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Vasco Pesquita

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Paulo Manuel Marques Rodrigues

Banco de Portugal ( email )

R. do Ouro, 27
Lisboa, 1100-150
Portugal

Antonio Rua (Contact Author)

Bank of Portugal - Economic Research Department ( email )

R. do Ouro, 27
Lisboa, 1100-150
Portugal

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