A Markov Switching Model of the Merit Order to Compare British and German Price Formation
AbstractThe objective of this paper is to develop a model to determine the price formation of wholesale electricity markets. For that purpose, we model wholesale electricity prices depending on the prices of fuels (coal and natural gas) and of CO2 emission allowances using a Markov Switching Regression. We apply the model to wholesale electricity prices in the UK and in Germany. While British electricity prices are quite well explained by short-run cost factors, we find a decoupling between electricity prices and fuel costs in Germany. This may be evidence that the German electricity generation sector does not work competitively.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 714.
Length: 15 p.
Date of creation: 2007
Date of revision:
Electricity prices; Markov Switching Models;
Find related papers by JEL classification:
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-14 (All new papers)
- NEP-ENE-2007-08-14 (Energy Economics)
- NEP-MIC-2007-08-14 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
- Huisman, R. & Mahieu, R.J., 2003.
"Regime jumps in electricity prices,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-3131736, Tilburg University.
- Huisman, R. & Mahieu, R.J., 2001. "Regime Jumps in Electricity Prices," Research Paper ERS-2001-48-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- Arciniegas, Ismael & Barrett, Chris & Marathe, Achla, 2003. "Assessing the efficiency of US electricity markets," Utilities Policy, Elsevier, vol. 11(2), pages 75-86, June.
- Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September.
- Alois Rhiel & Bernhard Heitzer & Berthold A. Bonekamp & Christian von Hirschhausen & Anne Neumann & Hannes Weigt, 2008. "Energiekonzerne: Steigende Umsätze, steigende Gewinne, steigende Preise. Fehlt der Wettbewerb?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 61(01), pages 03-15, 01.
- Pollitt, M., 2007.
"The arguments for and against ownership unbundling of energy transmission networks,"
Cambridge Working Papers in Economics
0737, Faculty of Economics, University of Cambridge.
- Pollitt, Michael, 2008. "The arguments for and against ownership unbundling of energy transmission networks," Energy Policy, Elsevier, vol. 36(2), pages 704-713, February.
- Weigt, Hannes & Hirschhausen, Christian von, 2008. "Price formation and market power in the German wholesale electricity market in 2006," Energy Policy, Elsevier, vol. 36(11), pages 4227-4234, November.
- Koenig, P., 2011. "Modelling Correlation in Carbon and Energy Markets," Cambridge Working Papers in Economics 1123, Faculty of Economics, University of Cambridge.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.