The dynamics of hourly electricity prices
AbstractThe dynamics of hourly electricity prices in day-ahead markets is an important element of competitive power markets that were only established in the last decade. In electricity markets, the market microstructure does not allow for continuous trading, since operators require advance notice in order to verify that the schedule is feasible and lies within transmission constraints. Instead agents have to submit their bids and offers for delivery of electricity for all hours of the next day before a specified market closing time. We suggest the use of dynamic semiparametric factor models (DSFM) for the behavior of hourly electricity prices. We find that a model with three factors is able to explain already a high proportion of the variation in hourly electricity prices. Our analysis also provides insights into the characteristics of the market, in particular with respect to the driving factors of hourly prices and their dynamic behavior through time.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-013.
Length: 24 pages
Date of creation: Feb 2010
Date of revision:
Power Markets; Dynamic Semiparametric Factor Models; Day-ahead Electricity Prices;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-ENE-2010-04-17 (Energy Economics)
- NEP-MST-2010-04-17 (Market Microstructure)
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- Liebl, Dominik, 2010. "Modeling hourly Electricity Spot Market Prices as non stationary functional times series," MPRA Paper 25017, University Library of Munich, Germany.
- Liebl, Dominik, 2010. "Estimation of the Semiparametric Factor Model: Application to Modelling Time Series of Electricity Spot Prices," MPRA Paper 26800, University Library of Munich, Germany.
- Wolfgang Karl Härdle,Piotr Majer & Melanie Schienle, 2012. "Yield Curve Modeling and Forecasting using Semiparametric Factor Dynamics," SFB 649 Discussion Papers SFB649DP2012-048, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Katarzyna Maciejowska & Rafal Weron, 2013. "Forecasting of daily electricity prices with factor models: Utilizing intra-day and inter-zone relationships," HSC Research Reports HSC/13/11, Hugo Steinhaus Center, Wroclaw University of Technology.
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