SENALÉTICA UTILIZADA EN EQUIPOS DE PERFORACIÓN

The work undertaken for this thesis reinforces the view that the behaviour of electricity markets is highly idiosyncratic when compared to other more “conventional” financial markets. Although many of the characteristics of electricity prices can be replicated to some extent with existing stochastic models and a

structural approach to modelling is warranted, there are several modelling issues that are worthy of further exploration. These include: the factors driving the behaviour of spot prices, for example economic fundamentals including demand-side behaviour, fuel costs; regulatory constraints, market design effects, the effects of forward contracting and option sales by generators, perceived risks, trading inefficiencies and strategic use of market power and short-run anomalies like generation plant outage or transmission grid failure. The magnitude, relative importance and intra-day variation of these economic fundamentals and their influence on prices, especially the behaviour of demand and any strategic trading behaviour on the part of generators may be worthy of further exploration, as would the changing nature and dynamics of structural effects as markets evolve and mature.

Much of the work on empirical price modelling attempts to adapt familiar models from financial assets to the characteristics of electricity. Knittel and Roberts (2001) find that the forecasting performance of standard financial models is relatively poor in the presence of seasonal effects and extreme behaviour and without adjustment for these effects. A further possibility for research is the distributional characteristics of electricity prices. It may be that the findings of Knittel and Roberts (2001) to some extent result from the fact that most “standard” financial models require some assumption about the distributional characteristics of prices and returns and these assumptions may not hold in electricity markets. Further investigation of these effects may also be of significance for financial institutions wishing to trade in the electricity markets or to develop risk products for market participants.

Although the imperfections of electricity market offer a rich structure for modellers, and most of the economic, technical and behavioural influences could be captured by a mixture of econometric and stochastic specifications, the political, environmental and social sensitivity of the electricity sector is becoming increasingly important. Even though markets have been deregulated in many jurisdictions, the threat of regulatory interference is ever present (see Bower, 2004). High prices only have to persist for a few months before price caps emerge, as indeed they have in Britain, Spain, and Australia. In more recent times the social, industrial and environmental impacts of the electricity industry have become a point of discussion among politicians and the wider community. Carbon emissions trading schemes exist in other parts of the world and for Australia, some form of national regulatory impost for carbon dioxide emissions is not far away, either in the form of “carbon taxes” or a required emissions trading scheme (various disjoint forms of voluntary and compulsory scheme already operate in Australia). There is much work to be done in the meantime on understanding electricity prices but it would seem prudent in the longer run to consider how these additional factors might be incorporated into model specifications.

A further possibility for research is the effect of market power and supplier bid behaviour. Robinson and Baniak (2002) argue that in the UK setting, generators with market power have the incentive to create volatility in the spot market in order to benefit from higher risk premiums in the contract market. Criticisms along these lines have recently been made regarding the operations of Snowy Hydro as a peak producer in the local market. Similarly, changes in purchasing or contracting behavior by large purchasers of electricity may also have an influence on price volatility; an aspect of

volatility development that has had little treatment in the Australian setting. Smith (2003), argues that the US spot electricity markets lost much of their volatility as large consumers, like California, moved out of electricity purchases in the spot market to long-term contracts and a similar effect was observed in England and Wales when the spot market was changed from a compulsory market (like Australia) to a non- compulsory, residual settlement market. Wolak (1997) and Goto and Karolyi (2004) in their comparative studies of markets note that volatility characteristics appear to be closely related to the institutional structure of markets, with extreme price spikes more prevalent in markets with compulsory participation, as is the case in Australia’s NEM. It may be possible to proxy changes in the competitive environment to provide empirical evidence whether competition increases or decreases price volatility and it is feasible that changes in regulatory regimes could be more directly included as exogenous factors in a study of electricity price and volatility. Better understanding of the effects of changes to market operation and regulation may provide useful insight for future regulation and market management in Australia.

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