Detection of multiple bubbles in South African electricity prices

13 Oct 2016

This paper investigates the existence and dating of electricity price bubbles in South Africa from 1965 to 2013. In the literature, it is agreed that such a task is difficult due to the explosive nature of price bubbles and labeling their presence’s occurrence. To overcome the predicament, the authors followed the methodological approach suggested by Phillips et al. (2013): a recursive right-tailed Generalized Sup Augmented Dickey-Fuller (GSADF). Two significant bubbles were detected in the output-adjusted nominal prices: the first one was a long one from 1971 to 1998 and can be attributed to the monopolistic unregulated nature of the electricity market at the time, while the second one lasted for a shorter period of time (2008–2009) coinciding with the severe supply crisis of 2008, and the massive price hikes that followed it.