Electricity Trade Patterns in a Network

Abstract

Using high-frequency trade volume and price data in a transmission network we investigate patterns of trade and its impacts in the market price formation process. In particular, we study the Ontario wholesale electricity market and its trade with multiple interconnected markets, including New York, Michigan, and Minnesota, through 13 interconnections. This research has regulatory implications on integration of electricity markets, and possible investments in transmission and production capacity. The main findings are in order: (a) imports are unambiguously related to prices (significant Granger causality), while exports are not; (b) trade mainly occurs due to the market price differentials between the markets and traders can use past price observation to take trade positions before the markets clear; (c) there is a high degree of integration across the markets in the network, where the speed of convergence of cross prices is almost instantaneous.