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The growing importance of natural gas as a predictor for retail electricity prices in US

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  • Alexopoulos, Thomas A.

Abstract

In the literature, there are tests about long and or short Granger causality between primary energy sources such as natural gas and secondary energy sources like electricity. Nevertheless the existence of a causal relationship or not, cannot clearly illustrate the dynamics in their relationship over time. Towards this direction, we apply a one step ahead rolling forecast and examine the performance of the average cost of natural gas as a predictor for retail electricity prices at national and regional level over time. Our analysis answers if, how and when the cost of natural gas becomes a significant predictor of electricity prices. Besides lower natural gas prices, the existence of sufficient gas infrastructures or a competitive market environment or both of them is needed in order to couple retail electricity prices with the cost of natural gas. This growing importance must be taken into account from policy makers by allowing additional gas based stations in the main-grid but at the same time avoiding the risks from the natural gas price volatility.

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  • Alexopoulos, Thomas A., 2017. "The growing importance of natural gas as a predictor for retail electricity prices in US," Energy, Elsevier, vol. 137(C), pages 219-233.
    • Handle: RePEc:eee:energy:v:137:y:2017:i:c:p:219-233
    DOI: 10.1016/j.energy.2017.07.002
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    More about this item

    Keywords

    Retail electricity price; Cost of natural gas; Rolling forecast; NERC regions; Time-dependent relationship;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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