A spot-forward model for electricity prices with regime shifts
Journal
Energy Economics
ISSN
0140-9883
ISSN-Digital
1873-6181
Type
journal article
Date Issued
2015
Author(s)
Abstract
We propose a novel regime-switching approach for the simulation of electricity spot prices that is inspired by the class of fundamental models and takes into account the relation between spot and forward prices. Additionally the model is able to reproduce spikes and negative prices. Market prices are derived given an observed price forward curve, and spikes may occur with a certain probability. To this end, we distinguish between a base regime and an upper as well as a lower spike regime. The model parameters are calibrated using the historical hourly price forward curves for EEX Phelix and the dynamics of hourly spot prices. We further evaluate different time series models such as ARMA and GARCH that are usually applied for modeling electricity prices and conclude a better performance of the proposed regime-switching model.
Language
English
Keywords
electricity prices
regime-switching model
negative prices
spikes
price forward curves
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
47
Start page
142
End page
153
Pages
12
Eprints ID
235656