Spot electricity price discovery in Indian electricity market

This paper investigates the spot electricity price discovery that exists among the five regions of Indian electricity market using hourly spot electricity price data from 1st January 2014 to 31st December 2015. Using Augmented Dickey-Fuller (1981) and Narayan and Popp (2010) unit root tests, we find that the spot electricity prices for both peak and off-peak hours across all the regions are stationary at level. Then by applying Granger causality test for a reduced VAR model at level, the results show that there hardly any causality exists between these electricity markets barring few regions. Though we did not find any causality between peak price and off-peak price for all individual region, but we formed two panels by using peak and off-peak price data of all five regions. Our results showed short-run and long-run panel Granger causality between peak price and off-peak price. The results of the study suggests that though India as a nation has all the regions inter-connected with single frequency of Power grid operation since 2008, however, these markets are not highly integrated in comparison to electricity markets of developed nations around the world.