Modelling Electricity Prices: International Evidence*

Álvaro Escribano · Juan Ignacio Peña · Pablo Villaplana

184 citations0/0 files storedOxford Bulletin of Economics and Statistics

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Stochastic processes and financial applications Market Dynamics and Volatility Energy Load and Power Forecasting

Abstract

This article analyses the evolution of electricity prices in deregulated markets. We present a general class of models that simultaneously takes into account several factors: seasonality, mean reversion, GARCH behaviour and time-dependent jumps. The models are applied to daily equilibrium spot prices of eight electricity markets. Eight different nested models were estimated to compare the relative importance of each factor in each of the eight markets. We find strong evidence that electricity equilibrium prices are mean-reverting, with volatility clustering (GARCH) and with jumps of time-dependent intensity, even after adjusting for seasonality.

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References

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