Beyond the Mean: Examining Electricity Spot Price Distribution in Australia

We extend beyond conventional mean-to-mean effects to examine how fundamental variables impact the entire distribution of electricity spot prices in the Australian National Electricity Market. Employing quantile regression models, we demonstrate that variable renewable energy (VRE) generation effectively lowers spot prices at lower quantiles when electricity is relatively inexpensive. However, its role in reducing prices is marginal or negligible at higher quantiles when electricity becomes more costly. High gas prices persist as a significant market challenge, with marginal increases causing price surges at the tails of the price distribution. Analysis of the 2022 energy crisis shows the limited capability of VRE and interconnectors to counteract high gas and coal prices, along with opportunistic hydro generators. The findings underscore the need for policies promoting further renewable energy adoption, a reassessment of the role of gas generation, and strategies to enhance energy market resilience. JEL Classification: C58 - Financial Econometrics; Q40 - Energy: General; Q42 - Alternative Energy Sources