Dynamic relationship between wholesale and retail electricity prices

The aim of the thesis is to provide a detailed analysis of the relationship between wholesale and retail electricity prices using appropriate statistical and econometric methods with a focus on the Czech and European markets. The liberalisation of the electricity market has led to fundamental changes in the way electricity is produced, distributed and priced over the last few decades. It has promoted competitiveness, increased market efficiency and reduced electricity costs, but has also brought with it increased volatility and uncertainty in electricity prices. Understanding the dynamic relationship between wholesale and retail electricity prices is therefore important for many market participants, including the Energy Regulatory Office, with whom this thesis was written. In order to investigate the dynamics and significance of the retail and wholesale price dependencies, cluster analysis is first applied to divide European countries into clusters with similar time series price patterns. Then, the dynamic relationship between electricity prices in the Czech Republic and Germany is investigated using vector autoregressive models. An extension of the VAR model to include a panel dimension subsequently allows for the analysis of these relationships in twenty-three selected European countries. Based on the results, the thesis provides valuable insights into the state of the power sector and the relationship between retail and wholesale electricity prices, which are key indicators of market performance, profitability of market participants and affordability of electricity for end-users.