WSEAS Transactions on Business and Economics
Print ISSN: 1109-9526, E-ISSN: 2224-2899
Volume 12, 2015
The Dynamics of the Italian Electricity Generation System: an Empirical Assessment
Authors: António Cardoso Marques, José Alberto Fuinhas, Tiago Lopes Afonso
Abstract: This article focuses on how electricity generation sources interact with each other and with economic activity in Italy. This country has gone through a period of instability in its economic activity. It is very dependent on the importation of electricity and of raw materials for electricity generation. These factors make the analysis of the dynamics of interaction between the various sources in Italy particularly interesting. Monthly data is used, employing an ARDL approach. This approach allows the use of variables I(0) and I(1) at the same time, as well as allowing an understanding of the difference in the short- and long-run effects. The Toda-Yamamoto causality test was used to determine causal relationships. In general, the results show empirical evidence for the substitution effect between hydropower and fossil fuels. The hydropower generation source has a positive impact in the short-run, and a negative one in the long-run, given that, the possibility of expanding capacity in this generation source has almost been exhausted. In the long-run, economic activity encourages renewable energy generation, but the opposite is not verified. This result is consistent with the fact that the contribution of renewables is a result of the goals outlined by the European Union. Thus policy makers should stimulate the endogenous production of electricity. The target set by the European Union should take into account the degree of wealth of the countries. This work also contains a detailed discussion about energy policies to make the accommodation of generation sources within the system more flexible.
Keywords: ARDL approach, Toda-Yamamoto causality test, economic growth, renewable and non-renewable electricity, Italy
Pages: 229-238WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 12, 2015, Art. #20