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Modelling interregional links in electricity price spikes

Author

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  • Clements, A.E.
  • Herrera, R.
  • Hurn, A.S.

Abstract

Abnormally high price spikes in spot electricity markets represent a significant risk to market participants. As such, a literature has developed that focuses on forecasting the probability of such spike events, moving beyond simply forecasting the level of price. Many univariate time series models have been proposed to deal with spikes within an individual market region. This paper is the first to develop a multivariate self-exciting point process model for dealing with price spikes across connected regions in the Australian National Electricity Market. The importance of the physical infrastructure connecting the regions on the transmission of spikes is examined. It is found that spikes are transmitted between the regions, and the size of spikes is influenced by the available transmission capacity. It is also found that improved risk estimates are obtained when inter-regional linkages are taken into account.

Suggested Citation

  • Clements, A.E. & Herrera, R. & Hurn, A.S., 2015. "Modelling interregional links in electricity price spikes," Energy Economics, Elsevier, vol. 51(C), pages 383-393.
    • Handle: RePEc:eee:eneeco:v:51:y:2015:i:c:p:383-393
    DOI: 10.1016/j.eneco.2015.07.014
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    References listed on IDEAS

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    More about this item

    Keywords

    Electricity prices; Price spikes; Point process; Hawkes process; Peaks over threshold; Transmission capacity;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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