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Modeling electricity prices: international evidence
http://www.erasmusenergy.com/articles/60/1/Modeling-electricity-prices-international-evidence/Page1.html
Alvaro Escribano

Álvaro Escribano is Professor at the Department of Economics, Universidad Carlos III de Madrid and Telefonica-UC3M Chair on “Economics of Telecommunications".

 
By Alvaro Escribano
Published on 10/1/2007
 
Keywords: electricity prices, seasonality, mean reversion, GARCH, jumps, unit root test, bootstrap.
Published in:
Publication year: 2002
Co-author 1: Juan Ignaicio Pena
Co-author 2: Pablo Villaplana

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, and Spain 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.
Modeling electricity prices: international evidence

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, and Spain 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.