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Electricity Price Volatility and the Marginal Cost of Congestion: An Empirical Study of Peak Hours on the NYISO Market, 2001-2004

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  • Lester Hadsell
  • Hany A. Shawky

Abstract

We examine the volatility characteristics of the NYISO Day Ahead and Real Time electricity markets for peak hours from January 2001 to June 2004. GARCH models are used to study the differences in volatility across zones. We find that price volatility is higher but less persistent in the Real Time market than in the Day Ahead market. Furthermore, we document the importance of transmission congestion and empirically estimate its impact on volatility in electricity prices. We also examine the Day Ahead premium and show how it is related to volatility in Real Time prices. The implications for participants in these markets are discussed.

Suggested Citation

  • Lester Hadsell & Hany A. Shawky, 2006. "Electricity Price Volatility and the Marginal Cost of Congestion: An Empirical Study of Peak Hours on the NYISO Market, 2001-2004," The Energy Journal, , vol. 27(2), pages 157-180, April.
    • Handle: RePEc:sae:enejou:v:27:y:2006:i:2:p:157-180
    DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No2-9
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    1. Nam, Kiseok & Pyun, Chong Soo & Kim, Sei-Wan, 2003. "Is asymmetric mean-reverting pattern in stock returns systematic? Evidence from Pacific-basin markets in the short-horizon," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(5), pages 481-502, December.
    2. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
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    Cited by:

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