Solar energy penetration and volatility transmission to electricity markets - an Australian perspective

The contribution of solar energy to electricity production has intensified in recent years. In this study, we aim to measure the impact of higher solar penetration on electricity prices across regional and national electricity markets in Australia. Using daily data, we also estimate volatility transmission among the Australian electricity markets. Univariate and multivariate GARCH models are employed to achieve the objectives of the study. The results show that increasing solar penetration decreases electricity prices in the regional electricity markets of Queensland, South Australia and Tasmania. However, the results further reveal that the joint negative effect of solar energy on electricity prices is outweighed by the positive impact of natural gas prices. Finally, the findings show that there are many significant own-volatility and cross-volatility spillovers among the Australian electricity markets. Among the regional electricity markets, the New South Wales electricity market emerged as the most critical market in terms of cross volatility.