Tail Risk Connectedness in the Australian National Electricity Markets: The Impact of Rare Events

Son Duy Pham, Hung Xuan Do, Rabindra Nepal*, Tooraj Jamasb

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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Abstract

The tail risks can exhibit different and important features than average measures of risk in interconnected electricity markets. This paper examines the interconnectedness of tail risks within the regionally interconnected Australian National Electricity Market. We use the Conditional Autoregressive Value-at-Risk (CAViaR) and time-varying parameter vector autoregression (TVP-VAR) connectedness approach. Analysing historical data between 01 January 2006 and 04 February 2024. The results show significant levels of connectedness for both negative and positive tail risks, highlighting the dynamic and interdependent nature of these markets. Notably, we identify asymmetries in the transmission of tail risks and their key drivers, including oil market volatility and global geopolitical risks. Our findings show that some regions play a pivotal role in the risk dynamics across the regions of the network and the influence of energy source diversity on risk profiles. The study underscores the complexity of managing the expected increase in tail risks in interconnected electricity markets, emphasizing the need for adaptive, forward-thinking strategies tailored to evolving global and local conditions.
Original languageEnglish
Article number108123
JournalEnergy Economics
Volume141
Number of pages19
ISSN0140-9883
DOIs
Publication statusPublished - Jan 2025

Bibliographical note

Published online: 19 December 2024.

Keywords

  • Electricity markets
  • Tail risk
  • TVP-VAR connectedness
  • Australia
  • CAViaR

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