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Identifying spikes and seasonal components in electricity spot price data: A guide to robust modeling

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  • Janczura, Joanna
  • Trueck, Stefan
  • Weron, Rafal
  • Wolff, Rodney

Abstract

An important issue in fitting stochastic models to electricity spot prices is the estimation of a component to deal with trends and seasonality in the data. Unfortunately, estimation routines for the long-term and short-term seasonal pattern are usually quite sensitive to extreme observations, known as electricity price spikes. Improved robustness of the model can be achieved by (a) filtering the data with some reasonable procedure for outlier detection, and then (b) using estimation and testing procedures on the filtered data. In this paper we examine the effects of different treatment of extreme observations on model estimation and on determining the number of spikes (outliers). In particular we compare results for the estimation of the seasonal and stochastic components of electricity spot prices using either the original or filtered data. We find significant evidence for a superior estimation of both the seasonal short-term and long-term components when the data have been treated carefully for outliers. Overall, our findings point out the substantial impact the treatment of extreme observations may have on these issues and, therefore, also on the pricing of electricity derivatives like futures and option contracts. An added value of our study is the ranking of different filtering techniques used in the energy economics literature, suggesting which methods could be and which should not be used for spike identification.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39277.

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Date of creation: 06 Jun 2012
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Handle: RePEc:pra:mprapa:39277

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Keywords: Electricity spot price; Outlier treatment; Price spike; Robust modeling; Seasonality;

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Cited by:
  1. Nowotarski, Jakub & Tomczyk, Jakub & Weron, Rafal, 2012. "Robust estimation and forecasting of the long-term seasonal component of electricity spot prices," MPRA Paper 42563, University Library of Munich, Germany.
  2. Ladislav KRISTOUFEK & Petra LUNACKOVA, 2013. "Long-term Memory in Electricity Prices: Czech Market Evidence," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(5), pages 407-424, November.
  3. Jakub Nowotarski & Eran Raviv & Stefan Trueck & Rafal Weron, 2013. "An empirical comparison of alternate schemes for combining electricity spot price forecasts," HSC Research Reports HSC/13/07, Hugo Steinhaus Center, Wroclaw University of Technology.

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