Modeling risk contagion in the Italian zonal electricity market

Ensuring the security of stable, efficient and reliable energy supplies has intensified interconnections between markets. Imbalances supply demand due to operational failures, congestion other sources risk faced by market connections can lead a system that is vulnerable spread its spill-over. The main contribution this paper development estimation Bayesian Graphical Vector-AutoRegression Structural Equation Modelling with external regressors - BG-VARX BG-SEMX, respectively enhancing proper analysis connections. Italian electricity been chosen because it clear example zonal where over connected zones. We estimate, for first time, within-day across-day multivariate time series hourly prices, actual forecast power wind generation period 2014–2019 evaluate dynamics persistence connections, examining in zones market. Our findings provide an improved, accurate explanation contagion, identifying are most influential terms hub centrality (major transmitters) authority recipients), respectively, intra-day inter-day propagation In addition, policy implications market-monitoring discussed.