Liquidity in Electricity Markets: How Generation Technology Shapes Price Impact
Publication Date
7-29-2026
Abstract
We bring the market-microstructure framework of liquidity supply and demand to Australia’s National Electricity Market, where forecast errors in consumption and generation create short-run imbalances that flexible technologies must absorb. We estimate that a one-GW imbalance raises prices by $47.83/MWh, with larger effects near dispatch and during high-demand intervals. Consumer demand shocks have larger price impacts than renewable supply shocks. Our estimates show that liquidity roles differ by technology: wind and solar demand liquidity, while coal, gas, hydro, and batteries supply it. Coal adjusts most in absolute terms, hydro, gas, and batteries adjust most proportionally; hydro becomes the largest supplier above $300/MWh. Among flexible technologies, battery provision is associated with the highest price impact and hydro with the lowest. Our findings suggest that, as renewable penetration rises, the flexible generation mix, not capacity alone, shapes how costly imbalances are to absorb.
Document Type
Article
Keywords
Electricity Markets, Market Liquidity, Price Impact, Generation Flexibility
Disciplines
Finance
Language
English
