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Evaluation of Cost-at-Risk related to the procurement of resources in the ancillary services market. The case of the Italian electricity market

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  • Lisi, Francesco
  • Grossi, Luigi
  • Quaglia, Federico

Abstract

Measuring the risk exposure of TSOs on the dispatching market is a crucial task for the correct management of liberalized electricity markets. To fill a gap in the literature, the notion of Cost-at-Risk (CaR) is defined in the context of the dispatching market. Moreover, we propose a set of semi-parametric and non-parametric models for the estimation of the Cost at Risk (CaR) for the Italian TSO (Terna) and evaluate the corresponding out-of-sample forecasting performance. The empirical analysis relies on a rich hourly dataset provided by Terna, including several costs’ drivers. The results, in terms of 1-day and 30-day ahead predictions, suggest that the model with the globally best performance is the semi-parametric GAM-GARCH model.

Suggested Citation

  • Lisi, Francesco & Grossi, Luigi & Quaglia, Federico, 2023. "Evaluation of Cost-at-Risk related to the procurement of resources in the ancillary services market. The case of the Italian electricity market," Energy Economics, Elsevier, vol. 121(C).
    • Handle: RePEc:eee:eneeco:v:121:y:2023:i:c:s0140988323001238
    DOI: 10.1016/j.eneco.2023.106625
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    More about this item

    Keywords

    Cost-at-risk (caR); Electricity market; Ancillary services; GAM models; Q-GAM models; GARCH models; Quantile regression;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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