Deregulation of the electricity generating industry, under way in the United States as well as in Europe, would yield economies to operate in a more competitive environment causing improvement of efficiency and the possibility to develop related financial markets to manage price uncertainty. Electricity spot prices tend to be remarkably volatile as consequence of extreme weather conditions, therefore there seems to be sufficient price uncertainty to warrant the development of derivative markets, however it is important to verify whether the underlying spot market is sufficiently competitive and well functioning to stimulate the development of related financial markets. Analyzing the features and price volatility of European markets which undertook the same process, as well as Norwey, Germany and Spain, we formulate a simple model to control the well functioning of energy spot markets in a deregulated context. The model is tested using Norwegian, Deutsch and Spanish spot prices over the last two years in order to assess the correct price formation in competitive operating markets.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
10048.
Find related papers by JEL classification: C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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