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On the impact of weather on German hourly power prices

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  • Kosater, Peter

Abstract

The liberalization of electricity markets has triggered research in econometric modelling and forecasting of electricity spot prices. Moreover, both the demand and the supply of electricity are subject to weather conditions. Therefore, we examine the relation between hourly electricity spot prices from the European Energy Exchange and weather, represented by temperature and wind velocity. Furthermore, we assess whether the relation can be successfully exploited for forecasting. Thereby, we proceed in the framework of Markov regime-switching models which have become a workhorse in econometric modelling of electricity spot prices. As a result, we detect a strong relationship, on one hand. On the other hand, the significance of this relation for forecasting is confined to certain hours.

Suggested Citation

  • Kosater, Peter, 2006. "On the impact of weather on German hourly power prices," Discussion Papers in Econometrics and Statistics 1/06, University of Cologne, Institute of Econometrics and Statistics.
  • Handle: RePEc:zbw:ucdpse:106
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    References listed on IDEAS

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    1. M. Angeles Carnero & Siem Jan Koopman & Marius Ooms, 2003. "Periodic Heteroskedastic RegARFIMA Models for Daily Electricity Spot Prices," Tinbergen Institute Discussion Papers 03-071/4, Tinbergen Institute.
    2. Mount, Timothy D. & Ning, Yumei & Cai, Xiaobin, 2006. "Predicting price spikes in electricity markets using a regime-switching model with time-varying parameters," Energy Economics, Elsevier, vol. 28(1), pages 62-80, January.
    3. Rafal Weron & Adam Misiorek, 2005. "Forecasting Spot Electricity Prices With Time Series Models," Econometrics 0504001, EconWPA.
    4. Alvaro Escribano & J. Ignacio Peña & Pablo Villaplana, 2011. "Modelling Electricity Prices: International Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(5), pages 622-650, October.
    5. Huisman, Ronald & Mahieu, Ronald, 2003. "Regime jumps in electricity prices," Energy Economics, Elsevier, vol. 25(5), pages 425-434, September.
    6. Michael Bierbrauer & Stefan Trueck & Rafal Weron, 2005. "Modeling electricity prices with regime switching models," Econometrics 0502005, EconWPA.
    7. Crespo Cuaresma, Jesús & Hlouskova, Jaroslava & Kossmeier, Stephan & Obersteiner, Michael, 2004. "Forecasting electricity spot-prices using linear univariate time-series models," Applied Energy, Elsevier, vol. 77(1), pages 87-106, January.
    8. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22.
    9. Kosater, Peter & Mosler, Karl, 2006. "Can Markov regime-switching models improve power-price forecasts? Evidence from German daily power prices," Applied Energy, Elsevier, vol. 83(9), pages 943-958, September.
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    Citations

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    Cited by:

    1. Christian Huurman & Francesco Ravazzolo & Chen Zhou, 2008. "The power of weather. Some empirical evidence on predicting day-ahead power prices through weather forecasts," Working Paper 2008/08, Norges Bank.
    2. Karakatsani, Nektaria V. & Bunn, Derek W., 2008. "Forecasting electricity prices: The impact of fundamentals and time-varying coefficients," International Journal of Forecasting, Elsevier, vol. 24(4), pages 764-785.
    3. Huurman, Christian & Ravazzolo, Francesco & Zhou, Chen, 2012. "The power of weather," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3793-3807.
    4. Karakatsani Nektaria V & Bunn Derek W., 2010. "Fundamental and Behavioural Drivers of Electricity Price Volatility," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 14(4), pages 1-42, September.
    5. Huisman, Ronald, 2008. "The influence of temperature on spike probability in day-ahead power prices," Energy Economics, Elsevier, vol. 30(5), pages 2697-2704, September.
    6. Karakatsani, Nektaria V. & Bunn, Derek W., 2008. "Intra-day and regime-switching dynamics in electricity price formation," Energy Economics, Elsevier, vol. 30(4), pages 1776-1797, July.

    More about this item

    Keywords

    Electricity spot prices; Weather; Markov regime-switching;

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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