  Electricity markets are significantly more volatile than other comparable
financial or commodity markets. Extreme price outcomes and their transmission
between regions pose significant risks for market participants. We examine the
dependence between extreme spot price outcomes in the Australian National
Electricity Market (NEM). We investigate extremal dependence both in a
univariate and multivariate setting, applying the extremogram developed by
Davis and Mikosch (2009) and Davis et al. (2011, 2012). We measure the
persistence of extreme prices within individual regional markets and the
transmission of extreme prices across different regions. With both 5-minute and
30-minute price data, we find that extreme prices are more persistent in the
market with a higher share of intermittent renewable energy. We also find that
persistence of extreme prices is more prevalent in more concentrated markets.
We also show significant extremal price dependence between different regions,
which is typically stronger between physically interconnected markets. The
dependence structure of extreme prices shows asymmetric and time-dependent
patterns. Applying the extremograms, we further show the effectiveness of the
Australian Energy Market Commission's 2016 rebidding rule with respect to
reducing the share of isolated price spikes that are often considered as an
indication of strategic bidding. Our results provide important information for
hedging decisions of market participants and for policy makers who aim to
reduce market volatility and extreme price outcomes through effective
regulations which guide the trading behaviour of market participants as well as
improved network interconnections.
