International Journal of Energy Economics and Policy (Sep 2023)

A GARCH Model to Understand the Volatility of the Electricity Spot Price in Brazil

  • André Luis da Silva Leite,
  • Marcus Vinicius Andrade de Lima

DOI
https://doi.org/10.32479/ijeep.14226
Journal volume & issue
Vol. 13, no. 5

Abstract

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Electricity is sensitive to extreme price events and spot price volatility is an inherent characteristic of competitive electricity markets. The purpose of this article it to model the realized volatility of electricity spot price in Brazil. The Brazilian electricity industry presents unique characteristics and because of this price varies a lot in a short period. So, we developed a GARCH model using 862 weekly observations to understand the realized volatility in the four different market. We conclude that the spot price in Brazil presents high volatility that presents risk to agents. This high volatility is associated with institutional factors and the increase in the share of renewable energy in the electricity mix.

Keywords