What Fuels the Volatility of Electricity Prices?

41 Pages Posted: 10 Feb 2019 Last revised: 5 Nov 2019

See all articles by Alessio Saretto

Alessio Saretto

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Anastasia Shcherbakova

Texas A&M University - Department of Agricultural Economics

Jeremy Lin

Transmission Analytics

Date Written: July 2019

Abstract

Negative policy spillovers can undermine the social effectiveness of well-intentioned regulations. We evaluate whether environmental regulations that shifted electricity generation from coal to natural gas, reducing emissions, had an effect on electricity price volatility. We use emergency outages of coal generators as an exogenous source of variation in the power generation stack to study how changes in marginal fuel affect real-time prices. Contrary to anecdotal evidence, we find that wholesale prices are less volatile when natural gas is on the margin more often. Our results suggest that policy makers are not trading off greater environmental benefits for higher financial risks.

Keywords: Price Volatility, Natural Gas, Coal, Emergency Outages

JEL Classification: G1, G13, Q02, Q41

Suggested Citation

Saretto, Alessio and Shcherbakova, Anastasia and Lin, Jeremy, What Fuels the Volatility of Electricity Prices? (July 2019). Available at SSRN: https://ssrn.com/abstract=3324592 or http://dx.doi.org/10.2139/ssrn.3324592

Alessio Saretto (Contact Author)

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

800 Campbell Road
SM 31
Richardson, TX 75080
United States
972-883-5907 (Phone)

HOME PAGE: http://www.utdallas.edu/~axs125732

Anastasia Shcherbakova

Texas A&M University - Department of Agricultural Economics ( email )

College Station, TX 77843
United States

HOME PAGE: http://energy.tamu.edu/faculty-experts/anastasia-shcherbakova/

Jeremy Lin

Transmission Analytics

Austin, TX
United States

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