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Spot-forward Model for Electricity Prices

Author

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  • Stein-Erik, Fleten
  • Paraschiv, Florentina

    ()

  • Schürle, Michel

    ()

Abstract

We propose a novel regime-switching approach for the simulation of electricity spot prices that is inspired by the class of fundamental models and takes into account the relation between spot and forward prices. Additionally the model is able to reproduce spikes and negative prices. Market prices are derived given an observed forward curve. We distinguish between a base regime and an upper as well as a lower spike regime. The model parameters are calibrated using historical hourly price forward curves for EEX Phelix and the dynamic of hourly spot prices. We further evaluate different time series models such as ARMA and GARCH that are usually applied for modeling electricity prices and conclude a better performance of the proposed regime-switching model.

Suggested Citation

  • Stein-Erik, Fleten & Paraschiv, Florentina & Schürle, Michel, 2013. "Spot-forward Model for Electricity Prices," Working Papers on Finance 1311, University of St. Gallen, School of Finance.
  • Handle: RePEc:usg:sfwpfi:2013:11
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1311.pdf
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    1. repec:dui:wpaper:1502 is not listed on IDEAS
    2. repec:eee:eneeco:v:64:y:2017:i:c:p:77-90 is not listed on IDEAS
    3. Erdogdu, Erkan, 2016. "Asymmetric volatility in European day-ahead power markets: A comparative microeconomic analysis," Energy Economics, Elsevier, vol. 56(C), pages 398-409.
    4. Kiesel, Rüdiger & Paraschiv, Florentina, 2017. "Econometric analysis of 15-minute intraday electricity prices," Energy Economics, Elsevier, vol. 64(C), pages 77-90.
    5. Stein-Erik Fleten & Ronald Huisman & Mehtap Kilic & Enrico Pennings & Sjur Westgaard, 2014. "Electricity futures prices: time varying sensitivity to fundamentals," Working Papers 2014/21, Institut d'Economia de Barcelona (IEB).
    6. Florian Ziel, 2015. "Forecasting Electricity Spot Prices using Lasso: On Capturing the Autoregressive Intraday Structure," Papers 1509.01966, arXiv.org, revised Jan 2016.

    More about this item

    Keywords

    electricity prices; regime-switching model; negative prices; spikes; price forward curves;

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