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A non-parametric structural hybrid modeling approach for electricity prices

Author

Listed:
  • S. Moazeni
  • M. Coulon
  • I. Arciniegas Rueda
  • B. Song
  • W.B. Powell

Abstract

We develop a stochastic model of zonal/regional electricity prices, designed to reflect information in fuel forward curves and aggregated capacity and load, as well as zonal or regional price spreads. We use a non-parametric model of the supply stack that captures heat rates and fuel prices for all generators in the market operator territory, combined with an adjustment term to approximate congestion and other zone-specific behaviour. The approach requires minimal calibration effort, is readily adaptable to changing market conditions and regulations, and retains sufficient tractability for the purpose of forward price calibration. The model is illustrated for the spot and forward electricity prices of the PS zone in the PJM market, and the set of time-dependent risk premiums are inferred and analysed.

Suggested Citation

  • S. Moazeni & M. Coulon & I. Arciniegas Rueda & B. Song & W.B. Powell, 2016. "A non-parametric structural hybrid modeling approach for electricity prices," Quantitative Finance, Taylor & Francis Journals, vol. 16(2), pages 213-230, February.
    • Handle: RePEc:taf:quantf:v:16:y:2016:i:2:p:213-230
    DOI: 10.1080/14697688.2015.1114363
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    References listed on IDEAS

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    1. Pirrong,Craig, 2012. "Commodity Price Dynamics," Cambridge Books, Cambridge University Press, number 9780521195898.
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    Cited by:

    1. Deschatre, Thomas & Féron, Olivier & Gruet, Pierre, 2021. "A survey of electricity spot and futures price models for risk management applications," Energy Economics, Elsevier, vol. 102(C).
    2. Alasseur, C. & Féron, O., 2018. "Structural price model for coupled electricity markets," Energy Economics, Elsevier, vol. 75(C), pages 104-119.
    3. Kanamura, Takashi & Bunn, Derek W., 2022. "Market making and electricity price formation in Japan," Energy Economics, Elsevier, vol. 107(C).
    4. Thomas Deschatre & Olivier F'eron & Pierre Gruet, 2021. "A survey of electricity spot and futures price models for risk management applications," Papers 2103.16918, arXiv.org, revised Jul 2021.

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