Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices
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Niels Haldrup
The functioning of electricity markets has experienced increasing complexity as a result of deregulation in recent years. Consequently this affects the multilateral price behaviour across regions with physical exchange of power. It has been documented elsewhere that features such as long memory and regime switching reflecting congestion and non-congestion periods are empirically relevant and hence are features that need to be taken into account when modeling price behavior. In the present paper we further elaborate on the co-existence of long memory and regime switches by focusing on the effect that the direction of possible congestion episodes has on the price dynamics. Under non-congestion prices are identical. The direction of possible congestion is identified by the region with excess demand of power through the sign of price differences and hence three different states can be considered: Non-congestion and congestion periods with excess demand in the one or the other region. Using data from the Nordic power exchange, Nord Pool, we find that the price dynamics and long memory features of the price series generally are rather different across the different states. Also, there is evidence of fractional cointegration at some grid points when conditioning on the states.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices
- Point and Interval Forecasting of Spot Electricity Prices: Linear vs. Non-Linear Time Series Models
- The Nature of Power Spikes: A Regime-Switch Approach
- Risk Management and the Role of Spot Price Predictions in the Australian Retail Electricity Market
- Randomly Modulated Periodic Signals in Alberta's Electricity Market
- Analysis and Modelling of Electricity Futures Prices
- Risk Premia in Electricity Forward Prices
- Analytical Approximation for the Price Dynamics of Spark Spread Options
- Estimating Trends in Weather Series: Consequences for Pricing Derivatives
- Measuring and Testing Natural Gas and Electricity Markets Volatility: Evidence from Alberta's Deregulated Markets
