This paper investigates the impact of market coupling on (1) electricity prices of Hungarian and Romanian markets and (2) the influence of renewable generation on price regimes by employing the Markov regime-switching model with time-varying transition probabilities. The study provides the evidence of the changes in regimes since market coupling. The results show that the persistence and occurrences of Hungarian price drops are significantly increased. Meanwhile, Romanian prices exhibit less and shorter living price jumps. Considering time-varying transition probabilities as functions of wind power production in Romania, the study also reveals that market coupling changed the influence of wind power production on the regime-switching mechanism of electricity prices.
Heavy-tails and regime-switching in electricity prices
