The impact of renewables on the volatility of the Australian electricity spot market

This thesis examines the effect of different fuel types on electricity price levels and volatility  during periods of high demand (peak) and periods of low demand (off peak) within the context  of the Australian wholesale electricity spot market. Using a SARMA model and a sample which  includes the 30-minute spot price, demand and generator production from 2009 to 2018, I  provide empirical evidence to support the hypothesis that renewable technologies – solar, wind  and hydro – increase daily and intraday volatility in most regions of Australia. To better understand the functioning of this unique commodity market and the behaviour of its participants, I factor in two economic variables, slack and tight, to account for scarcity of supply and the demand-supply equilibrium specific to electricity markets. The results remain consistent with regard to renewable technologies, however, natural gas changes from a positive sign (increasing volatility) to a negative sign (decreasing volatility). Furthermore, when the data sample is reduced to the years 2016 to 2018, when renewable penetration and volatility were at their highest, the results appear stronger. This may be due to the increasing importance of the reliability services that natural gas provides. This is particular evident in regions where coal generation has ceased, notably, South Australia. To the best of my knowledge, this thesis is the first to document a link between intraday electricity spot price volatility and an increase in renewable penetration within the Australian context.