The effect of a new power cable on energy prices volatility spillovers

Alessandro Sapio; Nicola Spagnolo

doi:10.1016/j.enpol.2020.111488

The effect of a new power cable on energy prices volatility spillovers

Alessandro Sapio^*, Nicola Spagnolo

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

6 Citations (Scopus)

Abstract

In this paper, we estimate volatility spillovers before and after the introduction of a new cable linking different electricity market zones. Using wholesale electricity prices for Sardinia and two neighbouring Italian market zones for the period 2005–2015, we focus on the effects of the SAPEI cable, fully operational since March 2011. VAR-GARCH estimates indicate that the SAPEI cable allowed for stronger volatility transmission towards Sardinia, a smaller zone and a net importer from its new neighbour, the Central Southern zone, albeit the effect was significant only off-peak. Higher conditional correlations between zonal prices are also observed after the cable was introduced. Some implications are drawn about the interaction between market size, export positions, congestion, and volatility transmission.

Original language	English
Article number	111488
Journal	Energy Policy
Volume	144
DOIs	https://doi.org/10.1016/j.enpol.2020.111488
Publication status	Published - Sept 2020

Access to Document

10.1016/j.enpol.2020.111488

Cite this

@article{94267165fce6404ab598d33b8113d84f,

title = "The effect of a new power cable on energy prices volatility spillovers",

abstract = "In this paper, we estimate volatility spillovers before and after the introduction of a new cable linking different electricity market zones. Using wholesale electricity prices for Sardinia and two neighbouring Italian market zones for the period 2005–2015, we focus on the effects of the SAPEI cable, fully operational since March 2011. VAR-GARCH estimates indicate that the SAPEI cable allowed for stronger volatility transmission towards Sardinia, a smaller zone and a net importer from its new neighbour, the Central Southern zone, albeit the effect was significant only off-peak. Higher conditional correlations between zonal prices are also observed after the cable was introduced. Some implications are drawn about the interaction between market size, export positions, congestion, and volatility transmission.",

keywords = "Electricity prices, Market integration, Transmission, VAR-GARCH, Volatility",

author = "Alessandro Sapio and Nicola Spagnolo",

note = "Publisher Copyright: {\textcopyright} 2020 Elsevier Ltd",

year = "2020",

month = sep,

doi = "10.1016/j.enpol.2020.111488",

language = "English",

volume = "144",

journal = "Energy Policy",

issn = "0301-4215",

publisher = "Elsevier B.V.",

}

TY - JOUR

T1 - The effect of a new power cable on energy prices volatility spillovers

AU - Sapio, Alessandro

AU - Spagnolo, Nicola

PY - 2020/9

Y1 - 2020/9

N2 - In this paper, we estimate volatility spillovers before and after the introduction of a new cable linking different electricity market zones. Using wholesale electricity prices for Sardinia and two neighbouring Italian market zones for the period 2005–2015, we focus on the effects of the SAPEI cable, fully operational since March 2011. VAR-GARCH estimates indicate that the SAPEI cable allowed for stronger volatility transmission towards Sardinia, a smaller zone and a net importer from its new neighbour, the Central Southern zone, albeit the effect was significant only off-peak. Higher conditional correlations between zonal prices are also observed after the cable was introduced. Some implications are drawn about the interaction between market size, export positions, congestion, and volatility transmission.

AB - In this paper, we estimate volatility spillovers before and after the introduction of a new cable linking different electricity market zones. Using wholesale electricity prices for Sardinia and two neighbouring Italian market zones for the period 2005–2015, we focus on the effects of the SAPEI cable, fully operational since March 2011. VAR-GARCH estimates indicate that the SAPEI cable allowed for stronger volatility transmission towards Sardinia, a smaller zone and a net importer from its new neighbour, the Central Southern zone, albeit the effect was significant only off-peak. Higher conditional correlations between zonal prices are also observed after the cable was introduced. Some implications are drawn about the interaction between market size, export positions, congestion, and volatility transmission.

KW - Electricity prices

KW - Market integration

KW - Transmission

KW - VAR-GARCH

KW - Volatility

UR - http://www.scopus.com/inward/record.url?scp=85085756994&partnerID=8YFLogxK

U2 - 10.1016/j.enpol.2020.111488

DO - 10.1016/j.enpol.2020.111488

M3 - Article

SN - 0301-4215

VL - 144

JO - Energy Policy

JF - Energy Policy

M1 - 111488

ER -

The effect of a new power cable on energy prices volatility spillovers

Abstract

Access to Document

Other files and links

Fingerprint

Cite this