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Causal modeling and inference for electricity markets

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  • Ferkingstad, Egil
  • Løland, Anders
  • Wilhelmsen, Mathilde
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    Abstract

    How does dynamic price information flow among Northern European electricity spot prices and prices of major electricity generation fuel sources? We use time series models combined with new advances in causal inference to answer these questions. Applying our methods to weekly Nordic and German electricity prices, and oil, gas and coal prices, with German wind power and Nordic water reservoir levels as exogenous variables, we estimate a causal model for the price dynamics, both for contemporaneous and lagged relationships. In contemporaneous time, Nordic and German electricity prices are interlinked through gas prices. In the long run, electricity prices and British gas prices adjust themselves to establish the equilibrium price level, since oil, coal, continental gas and EUR/USD are found to be weakly exogenous.

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    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 33 (2011)
    Issue (Month): 3 (May)
    Pages: 404-412

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    Handle: RePEc:eee:eneeco:v:33:y:2011:i:3:p:404-412
    Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

    Keywords: Vector autoregression Vector error correction Electricity markets Causal discovery Non-Gaussianity Directed acyclic graph Non-experimental data;

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    Cited by:

    1. Moutinho, Victor & Vieira, Joel & Carrizo Moreira, António, 2011. "The crucial relationship among energy commodity prices: Evidence from the Spanish electricity market," Energy Policy, Elsevier, vol. 39(10), pages 5898-5908, October.
    2. Lindström, Erik & Regland, Fredrik, 2012. "Modeling extreme dependence between European electricity markets," Energy Economics, Elsevier, vol. 34(4), pages 899-904.
    3. Thoenes, Stefan, 2011. "Understanding the Determinants of Electricity Prices and the Impact of the German Nuclear Moratorium in 2011," EWI Working Papers 2011-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
    4. Ciarreta Antuñano, Aitor & Zárraga Alonso, Ainhoa, 2012. "Analysis of volatility transmissions in integrated and interconnected markets: The case of the Iberian and French markets," BILTOKI Biltoki;2012-04, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
    5. He, Yongxiu & Wang, Bing & Wang, Jianhui & Xiong, Wei & Xia, Tian, 2013. "Correlation between Chinese and international energy prices based on a HP filter and time difference analysis," Energy Policy, Elsevier, vol. 62(C), pages 898-909.
    6. Florian Ziel & Rick Steinert & Sven Husmann, 2015. "Forecasting day ahead electricity spot prices: The impact of the EXAA to other European electricity markets," Papers 1501.00818, arXiv.org.

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