Skip to main content
SpringerLink
Log in

Non-linear cointegration between wholesale electricity prices and electricity generation: an analysis of asymmetric effects

  • Published:
Quality & Quantity Aims and scope Submit manuscript

Abstract

This study investigates the non-linear cointegrating relationship between wholesale electricity prices (WEP) and electricity generation from conventional sources (EGCS), using data for India. The conventional sources considered in the analysis are thermal, nuclear, and hydro. The dataset is a monthly time series covering the period from April 2012 to April 2019. The existence of a non-linear cointegration between the variables and asymmetric effects of EGCS on WEP are examined by employing a non-linear autoregressive distributed lags modelling framework. Empirical results reveal that a non-linear long-run equilibrium relationship is evident in the WEP-EGCS nexus for India. The findings indicate that in the long-run, electricity generation from nuclear and hydro sources have asymmetric effects on WEP, but thermal source has symmetric effects on WEP. However, only hydro source has asymmetric short-run effects on WEP. The findings of this study suggest that such non-linear relationships between WEP and EGCS are crucial to be accounted for identifying the optimal electricity generation fuel mix in emerging economies, including India.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Data availability

The data series for daily day-ahead wholesale electricity price can be accessed from the Indian energy exchange portal from the following link: https://www.iexindia.com/marketdata/areaprice.aspx

The data series for electricity generated from coal, hydro, gas, oil, and nuclear can be extracted from the monthly generation reports available at the Central Electricity Authority, Government of India from the following link: http://cea.nic.in/monthlyarchive.html

The data series for monthly index of industrial production can be accessed from the Indian energy exchange portal from the following link: https://dbie.rbi.org.in/DBIE/dbie.rbi?site=statistics

Code availability

Available on request.

References

  • Adom, P.K., Insaidoo, M., Minlah, M.K., Abdallah, A.M.: Does renewable energy concentration increase the variance/uncertainty in electricity prices in Africa? Renew. Energy 107, 81–100 (2017)

    Article  Google Scholar 

  • Ali, S., Xu, H., Al-amin, A.Q., Ahmad, N.: Energy sources choice and environmental sustainability disputes: an evolutional graph model approach. Qual. Quant. 53(2), 561–581 (2019)

    Article  Google Scholar 

  • Awerbuch, S.: Portfolio-based electricity generation planning: policy implications for renewables and energy security. Mitig. Adapt. Strateg. Glob. Change 11(3), 693–710 (2006)

    Article  Google Scholar 

  • Benini, M., Marracci, M., Pelacchi, P., Venturini, A.: Day-ahead market price volatility analysis in deregulated electricity markets. In: IEEE Power Engineering Society Summer Meeting 3, Chicago, pp. 1354–1359 (2002). https://ieeexplore.ieee.org/abstract/document/1043596

  • Bhattacharyya, S.C.: Fossil-fuel dependence and vulnerability of electricity generation: case of selected European countries. Energy Policy 37(6), 2411–2420 (2009)

    Article  Google Scholar 

  • Blazquez, J., Fuentes-Bracamontes, R., Bollino, C.A., Nezamuddin, N.: The renewable energy policy paradox. Renew. Sustain. Energy Rev. 82, 1–5 (2018)

    Article  Google Scholar 

  • Bluszcz, A.: European economies in terms of energy dependence. Qual. Quant. 51(4), 1531–1548 (2017)

    Article  Google Scholar 

  • BPSRWE-BP Statistical Review of World Energy: 68th Edition (2019). https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2019-full-report.pdf

  • Chattopadhyay, D.: Modelling renewable energy impact on the electricity market in India. Renew. Sustain. Energy Rev. 31, 9–22 (2014)

    Article  Google Scholar 

  • Forrest, S., MacGill, I.: Assessing the impact of wind generation on wholesale prices and generator dispatch in the Australian national electricity market. Energy Policy 59, 120–132 (2013)

    Article  Google Scholar 

  • Gao, F., Guan, X., Cao, X.R., Papalexpoulos, A.: Forecasting power market clearing price and quantity using a neural network method. In: IEEE Power Engineering Society Summer Meeting 4, Seattle, pp. 2183–2188 (2000). https://ieeexplore.ieee.org/abstract/document/866984

  • Gelabert, L., Labandeira, X., Linares, P.: An ex-post analysis of the effect of renewables and cogeneration on Spanish electricity prices. Energy Econ. 33, S59–S65 (2011)

    Article  Google Scholar 

  • Gerasimova, K.: Electricity price volatility: its evolution and drivers. Aalto University School of Business (2017). https://aaltodoc.aalto.fi/bitstream/handle/123456789/28725/master_Gerasimova_Kseniia_2017.pdf?sequence=1%20%20(2017)

  • Ghosh, S.: Impact of economic growth volatility on income inequality: ASEAN experience. Qual. Quant. 54(3), 807–850 (2020)

    Article  Google Scholar 

  • Girish, G.P., Rath, B.N., Akram, V.: Spot electricity price discovery in Indian electricity market. Renew. Sustain. Energy Rev. 82, 73–79 (2018)

    Article  Google Scholar 

  • Gross, R., Blyth, W., Heptonstall, P.: Risks, revenues and investment in electricity generation: why policy needs to look beyond costs. Energy Econ. 32(4), 796–804 (2010)

    Article  Google Scholar 

  • Grubb, M., Butler, L., Twomey, P.: Diversity and security in UK electricity generation: the influence of low-carbon objectives. Energy Policy 34(18), 4050–4062 (2006)

    Article  Google Scholar 

  • Higgs, H., Lien, G., Worthington, A.C.: Australian evidence on the role of interregional flows, production capacity, and generation mix in wholesale electricity prices and price volatility. Econ. Anal. Policy 48, 172–181 (2015)

    Article  Google Scholar 

  • Humphreys, H.B., McClain, K.T.: Reducing the impacts of energy price volatility through dynamic portfolio selection. Energy J. 19(3), 107–131 (1998)

    Google Scholar 

  • IRENA-International Renewable Energy Agency: Power system flexibility for the energy transition. Abu Dhabi (2018). https://www.irena.org/publications/2018/Nov/Power-system-flexibility-for-the-energy-transition

  • Johnson, E.P., Oliver, M.E.: Renewable generation capacity and wholesale electricity price variance. Energy J. 40(5), 143–168 (2019)

    Google Scholar 

  • Jun, E., Kim, W., Chang, S.H.: The analysis of security cost for different energy sources. Appl. Energy 86(10), 1894–1901 (2009)

    Article  Google Scholar 

  • Le, T.H., Nguyen, C.P.: Is energy security a driver for economic growth? Evidence from a global sample. Energy Policy 129, 436–451 (2019)

    Article  Google Scholar 

  • Maekawa, J., Hai, B.H., Shinkuma, S., Shimada, K.: The effect of renewable energy generation on the electric power spot price of the Japan electric power exchange. Energies 11(9), 2215 (2018)

    Article  Google Scholar 

  • Mari, C.: Hedging electricity price volatility using nuclear power. Appl. Energy 113, 615–621 (2014)

    Article  Google Scholar 

  • Martinez-Anido, C.B., Brinkman, G., Hodge, B.M.: The impact of wind power on electricity prices. Renew. Energy 94, 474–487 (2016)

    Article  Google Scholar 

  • Milstein, I., Tishler, A.: Intermittently renewable energy, optimal capacity mix and prices in a deregulated electricity market. Energy Policy 39(7), 3922–3927 (2011)

    Article  Google Scholar 

  • MNRE-Ministry of New and Renewable Energy: Strategic plan for new and renewable energy sector for the period 2011–17. New Delhi (2011). https://smartnet.niua.org/content/01fff686-a969-4137-a6d7-8a3fedfc6894

  • MOP-Ministry of Power: Power Sector at a Glance ALL INDIA. Government of India, https://powermin.nic.in/en/content/power-sector-glance-all-india (2019)

  • Pesaran, M.H., Shin, Y., Smith, R.J.: Bounds testing approches to the analysis. J. Appl. Econ. 16(3), 289–326 (2001)

    Article  Google Scholar 

  • Roques, F.A., Newbery, D.M., Nuttall, W.J.: Fuel mix diversification incentives in liberalized electricity markets: a mean-variance portfolio theory approach. Energy Econ. 30(4), 1831–1849 (2008)

    Article  Google Scholar 

  • Rudnick, H., Velasquez, C.: Taking stock of wholesale power markets in developing countries: a literature review. Policy Research Working Paper, 8519, World Bank, Washington D.C. (2018). http://documents.worldbank.org/curated/en/992171531321846513/pdf/WPS8519.pdf Accessed 23 Jan 2019

  • Sarangi, G.K., Mishra, A., Chang, Y., Taghizadeh-Hesary, F.: Indian electricity sector, energy security and sustainability: an empirical assessment. Energy Policy 135, 110964 (2019)

    Article  Google Scholar 

  • Shahbaz, M.: Current issues in time-series analysis for the energy-growth nexus (EGN); asymmetries and nonlinearities case study : Pakistan. In: Menegaki, A.N. (ed.) The Economics and Econometrics of the Energy-Growth Nexus, pp. 229–253. Cambridge Academic Press, Cambridge (2018)

    Google Scholar 

  • Shahbaz, M., Sherafatian-Jahromi, R., Malik, M.N., Shabbir, M.S., Jam, F.A.: Linkages between defense spending and income inequality in Iran. Qual. Quant. 50(3), 1317–1332 (2016)

    Article  Google Scholar 

  • Shin, Y., Yu, B., Greenwood-Nimmo, M.: Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In: Sickles, R.C., Horrace, W.C. (eds.) Festschrift in Honor of Peter Schmidt Econometric: Methods and Applications, p. 409. Springer, New York (2014)

    Google Scholar 

  • Shukla, U.K., Thampy, A.: Analysis of competition and market power in the wholesale electricity market in India. Energy Policy 39(5), 2699–2710 (2011)

    Article  Google Scholar 

  • Sovacool, B.K., Brown, M.A.: Competing dimensions of energy security: an international perspective. Annu. Rev. Environ. Resour. 35(1), 77–108 (2010)

    Article  Google Scholar 

  • Tripathi, L., Mishra, A.K., Dubey, A.K., Tripathi, C.B., Baredar, P.: Renewable energy: an overview on its contribution in current energy scenario of India. Renew. Sustain. Energy Rev. 60, 226–233 (2016)

    Article  Google Scholar 

  • Vogelsang, T.J., Perron, P.: Additional tests for a unit root allowing for a break in the trend function at an unknown time. Int. Econ. Rev. 39(4), 1073–1100 (1998)

    Article  Google Scholar 

  • Worthington, A.C., Higgs, H.: The impact of generation mix on Australian wholesale electricity prices. Energy Sour. Part B Econ. Plan. Policy 12(3), 223–230 (2017)

    Article  Google Scholar 

  • Zachmann, G., Hirschhausen, C.V.: First evidence of asymmetric cost pass-through of EU emissions allowances: examining wholesale electricity prices in Germany. Econ. Lett. 99(3), 465–469 (2008)

    Article  Google Scholar 

Download references

Funding

Not Applicable.

Author information

Authors and Affiliations

  1. Department of Management Studies, Indian Institute of Technology (Indian School of Mines) Dhanbad, Dhanbad, Jharkhand, 826004, India

    Barsha Nibedita & Mohd Irfan

Authors
  1. Barsha Nibedita
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Mohd Irfan
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

The first author has conceptualized the idea and collected the data. The second author has helped in analysing the data and writing the manuscript.

Corresponding author

Correspondence to Mohd Irfan.

Ethics declarations

Conflicts of interest

The authors declare that they have no conflict of interest.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Supplementary Information

Appendix

Appendix

See Fig. 2 and Table 4.

Fig. 2
figure 2

Time series plots of variables (after natural logarithmic transformation)

Full size image
Table 4 Descriptive statistics
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Nibedita, B., Irfan, M. Non-linear cointegration between wholesale electricity prices and electricity generation: an analysis of asymmetric effects. Qual Quant 56, 285–303 (2022). https://doi.org/10.1007/s11135-021-01130-w

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11135-021-01130-w

Keywords

Search

Navigation