A Stochastic Latent Moment Model for Electricity Price Formation
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The wide range of models needed to support the various short-term operations for electricity generation demonstrates the importance of accurate specifications for the uncertainty in market prices. This is becoming increasingly challenging, since hourly price densities for electricity exhibit a variety of shapes, with their characteristic features changing substantially within the day and evolving over time. Furthermore, the influx of renewable power, wind, and solar, in particular, has made these density shapes very weather dependent. We develop a general four-parameter stochastic model for hourly prices, in which the four moments of the density function are dynamically estimated as latent state variables and, furthermore, modelled as functions of several plausible exogenous drivers. This provides a transparent and credible model that is sufficiently flexible to capture the shape-shifting effects, particularly with respect to the wind and solar output variations causing dynamic switches in the upside and downside risks. Extensive testing on German wholesale price data, benchmarked against quantile regression and other models in out-of-sample backtesting, validated the approach and its analytical appeal.
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Gianfreda A; Grossi L (IEEE, 2009)In the last few years we have observed deregulation in electricity markets and an increasing interest of price dynamics has been developed especially to consider all stylized facts shown by spot prices. Only few papers, ...
Gianfreda A; Grossi L (ELSEVIER SCIENCE BV, 2012)In the last few years we have observed the deregulation in electricity markets and an increasing interest in price dynamics has been developed especially to consider all stylized facts shown by spot prices. Only few papers ...
Foscolo E (2018 - ECOSTA ECONOMETRICS AND STATISTICS, 2018)The aim is to forecast the occurrence of extreme prices (the so-called spikes) in the Australian electricity markets from half-hourly electricity spot prices. Specifically, we are interested in the simultaneous occurrences ...