Using a Rolling Vector Error Correction Model to Model Static and Dynamic Causal Relations between Electricity Spot Price and Related Fundamental Factors: The Case of Greek Electricity Market

Authors

  • George P. Papaioannou Independent Power Transmission Operator S.A. Center for Research and Applications in Nonlinear Systems (CRANS), Department of Mathematics, University of Patras
  • Christos Dikaiakos Independent Power Transmission Operator S.A. Department of Electrical and Computer Engineering, University of Patras
  • Akylas Stratigakos Department of Electrical and Computer Engineering, University of Patras
  • Anargyros Dramountanis
  • Antonio T. Alexandridis Prof Antonio T. Alexandridis Director of Power Systems Division Deputy Head of Electrical & Computer Engineering Department University of Patras

Abstract

The purpose of this study is to investigate short and long run relationships between electricity spot prices in Greece, Brent oil, natural gas, lignite fuel cost and carbon allowances using daily data from 2007 to 2014. Static and dynamic Johansen test are applied in order to identify long run relations and also to assess the evolution over time in the level of cointegration. Additionally we test for Granger Causality in a Vector error correction model and embrace impulse response and variance decomposition techniques to model the dynamic response of electricity prices in excitation of another variable. Overall our results suggest an important long run relation between spot electricity prices in Greece, natural gas price and carbon allowances, while in the short run electricity prices are not affected by any of the other variables, results that are of practical importance for the market regulator as well as the wholesale market participants.

Keywords:  Vector Error Correction, Electricity Markets, Fuel Markets


JEL Classifications: C4, C5 & C8

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Published

2018-01-24

How to Cite

Papaioannou, G. P., Dikaiakos, C., Stratigakos, A., Dramountanis, A., & Alexandridis, A. T. (2018). Using a Rolling Vector Error Correction Model to Model Static and Dynamic Causal Relations between Electricity Spot Price and Related Fundamental Factors: The Case of Greek Electricity Market. International Journal of Energy Economics and Policy, 8(1), 38–54. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/5624

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