The Effect of Increasing Market Interactions on Prices: Evidence from Australia’s Electricity Market

Abstract

On October 1, 2023, Australia’s Wholesale Electricity Market transitioned from a 30-minute to a 5-minute settlement period. We use high-frequency data, a time regression discontinuity design, and a neural network model to estimate the effects of the reform on electricity market outcomes. We find that wholesale electricity prices increased by 7.5–11.7 A$/MWh on average, while price volatility rose by 20.3–25.9 A$/MWh after the reform. In addition, we document spillover effects in the Short Term Electricity Market.