Space-time modeling of electricity spot prices

Girum Abate and Niels Haldrup ()

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In this paper we derive a space-time model for electricity spot prices. A general spatial Durbin model that incorporates the temporal as well as spatial lags of spot prices is presented. Joint modeling of space-time effects is necessarily important when prices and loads are determined in a network of power exchange areas. We use data from the Nord Pool electricity power exchange area bidding markets. Different spatial weight matrices are considered to capture the structure of the spatial dependence process across different bidding markets and statistical tests show significant spatial dependence in the spot price dynamics. Estimation of the spatial Durbin model show that the spatial lag variable is as important as the temporal lag variable in describing the spot price dynamics. We use the partial derivatives impact approach to decompose the price impacts into direct and indirect effects and we show that price effects transmit to neighboring markets and decline with distance. In order to examine the evolution of the spatial correlation over time, a time varying parameters spot price spatial Durbin model is estimated using recursive estimation. It is found that the spatial correlation within the Nord Pool grid has been increasing over time which we interpret as evidence for an increasing degree of market integration.

Keywords: Autoregressive; Spatial-Time series; Spatial dependence (search for similar items in EconPapers)
JEL-codes: C32 C33 (search for similar items in EconPapers)
Pages: 21
Date: 2015-05-07
New Economics Papers: this item is included in nep-ene, nep-geo and nep-ure
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Journal Article: Space-time modeling of electricity spot prices (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2015-22

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