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Conditionally independent increment processes for modeling electricity prices with regard to renewable power generation

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  • Lingohr, Daniel
  • Müller, Gernot

Abstract

Renewable energies have become responsible for a large part of the variation in electricity prices. We offer a new approach that makes it possible to represent this dependency in a flexible way. This allows to vary especially price spikes both in direction and size according to the generation of wind and solar power. The proposed concept is based on the construction of a process with conditionally independent increment. We provide an estimation procedure for them and offer a test to verify the dependency on an external variable. Based on the theoretical results, we fit an electricity price model for the German intraday market and use it to analyze power cap/floor prices.

Suggested Citation

  • Lingohr, Daniel & Müller, Gernot, 2021. "Conditionally independent increment processes for modeling electricity prices with regard to renewable power generation," Energy Economics, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:eneeco:v:103:y:2021:i:c:s0140988321001493
    DOI: 10.1016/j.eneco.2021.105244
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    References listed on IDEAS

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    Cited by:

    1. Rowińska, Paulina A. & Veraart, Almut E.D. & Gruet, Pierre, 2021. "A multi-factor approach to modelling the impact of wind energy on electricity spot prices," Energy Economics, Elsevier, vol. 104(C).
    2. Sirin, Selahattin Murat & Camadan, Ercument & Erten, Ibrahim Etem & Zhang, Alex Hongliang, 2023. "Market failure or politics? Understanding the motives behind regulatory actions to address surging electricity prices," Energy Policy, Elsevier, vol. 180(C).

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    More about this item

    Keywords

    Dependence modeling; External process; Residual demand; Spikes; Intraday prices; Power cap; Power floor; Market price of risk; Forecast information;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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