Professor Stefan Trueck - Winner of the 2015 Award for Excellence in Research - Prosperous Economies
Professor Stefan Trueck - Winner of the 2015 Award for Excellence in Research - Prosperous Economies

Price Spikes, Dependencies and Contagion Effects in Australian Electricity Markets

Since the introduction of competitive electricity markets and power exchanges the amount of risk borne by market participants has increased substantially. Electricity cannot be economically stores and requires immediate delivery such that electricity spot prices exhibit very high volatility and abrupt, short-lived and generally unanticipated extreme price changes known as spikes.

Australian electricity markets are more volatile and spike-prone than other comparable markets, over 90 jurisdictions Australia’s electricity prices are very near to the highest in the developed world. This is partially attributable to substantial risks in the spot electricity market and the costs of hedging those risks for market participants. Professor Stefan Trueck has been researching the driving factors of wholesale electricity prices.

Professor Trueck’s research provides new approaches to forecasting extreme prices and develops strategies for market participants to better manage their risk. The project has also applied new statistical techniques to understand the dynamics and dependence of spot electricity prices in regional markets that are linked through so-called interconnectors. In Australia’s unique electricity environment a better understanding of how to optimally hedge the risks associated with spot and derivative markets allows retailers and large customers to reduce the chances of substantial losses or financial distress.