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A Hyperbolic Bid Stack Approach to Electricity Price Modelling

Author

Listed:
  • Krisztina Katona

    (Finance Discipline Group, UTS Business School, University of Technology Sydney, Sydney, NSW 2007, Australia)

  • Christina Sklibosios Nikitopoulos

    (Finance Discipline Group, UTS Business School, University of Technology Sydney, Sydney, NSW 2007, Australia)

  • Erik Schlögl

    (School of Mathematical and Physical Sciences, University of Technology Sydney, Sydney, NSW 2007, Australia
    The African Institute of Financial Markets and Risk Management (AIFMRM), University of Cape Town, Cape Town 7700, South Africa
    Faculty of Science, Department of Statistics, University of Johannesburg, Johannesburg 2006, South Africa)

Abstract

Modelling the energy price in the Australian National Electricity Market (NEM) requires features that are not well reflected in existing models. We present a semi-structural, multi-regional model wherein bidding is not required to be cost-based, renewable fuels and storage technology are structurally integrated, and network constraints are often binding in optimal dispatch. Available fuel capacity then does not necessarily sum to registered bid capacity, as-bid fuel costs do not dependably follow input fuel prices, and cross-regional interconnectedness requires modelling trade. Furthermore, modelling the NEM spot price path must admit price negativity and price spikes. Extending previous work in the literature, the present paper proposes a hyperbolic bid stack approach to price modelling under these conditions.

Suggested Citation

  • Krisztina Katona & Christina Sklibosios Nikitopoulos & Erik Schlögl, 2023. "A Hyperbolic Bid Stack Approach to Electricity Price Modelling," Risks, MDPI, vol. 11(8), pages 1-39, August.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:8:p:147-:d:1214712
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    References listed on IDEAS

    as
    1. Coulon, Michael & Powell, Warren B. & Sircar, Ronnie, 2013. "A model for hedging load and price risk in the Texas electricity market," Energy Economics, Elsevier, vol. 40(C), pages 976-988.
    2. Damir Filipovic & Martin Larsson & Tony Ware, 2017. "Polynomial processes for power prices," Papers 1710.10293, arXiv.org, revised Apr 2018.
    3. René Aïd & Luciano Campi & Adrien Nguyen Huu & Nizar Touzi, 2009. "A Structural Risk-Neutral Model Of Electricity Prices," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 12(07), pages 925-947.
    4. Rassi, Samin & Kanamura, Takashi, 2023. "Electricity price spike formation and LNG prices effect under gross bidding scheme in JEPX," Energy Policy, Elsevier, vol. 177(C).
    Full references (including those not matched with items on IDEAS)

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