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Modeling electricity prices: international evidence

  • Peña Sánchez de Rivera, Juan Ignacio
  • Escribano, Álvaro
  • Villaplana, Pablo

This paper analyses the evolution of electricity prices in deregulated markets. We present a general model that simultaneously takes into account the possibility of several factors: seasonality, mean reversion, GARCH behaviour and time-dependent jumps. The model is applied to equilibrium spot prices of electricity markets from Argentina, Australia (Victoria), New Zealand (Hayward), NordPool (Scandinavia), Spain and U.S. (PJM) using daily data. Six different nested models were estimated to compare the relative importance of each factor and their interactions. We obtained that electricity prices are mean-reverting with strong volatility (GARCH) and jumps of time-dependent intensity even after adjusting for seasonality. We also provide a detailed unit root analysis of electricity prices against mean reversion, in the presence of jumps and GARCH errors, and propose a new powerful procedure based on bootstrap techniques.

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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we022708.

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Date of creation: Jun 2002
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Handle: RePEc:cte:werepe:we022708
Contact details of provider: Web page: http://www.eco.uc3m.es/

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  1. Bollerslev, T. & Ghysels, E., 1994. "Periodic Autoregressive Conditional Heteroskedasticity," Cahiers de recherche 9408, Universite de Montreal, Departement de sciences economiques.
  2. Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September.
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  12. Vlaar, Peter J G & Palm, Franz C, 1993. "The Message in Weekly Exchange Rates in the European Monetary System: Mean Reversion, Conditional Heteroscedasticity, and Jumps," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 351-60, July.
  13. Lucas, Andre, 1995. "An outlier robust unit root test with an application to the extended Nelson-Plosser data," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 153-173.
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  16. Ángel León & Antonio Rubia, 2001. "Comportamiento Del Precio Y Volatilidad En El Pool Eléctrico Español," Working Papers. Serie EC 2001-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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