 Modeling energy prices under energy transition: A novel stochastic-copula approachMário Correia Fernandes, José Carlos Dias and João Pedro Vidal Nunes Economic Modelling, 2021, vol. 105, issue C Abstract: Energy producers are challenged to contribute to a lower carbon economy and to enhance the decarbonization of this sector two sources highlight: electricity (mainly from renewables) and natural gas. To overcome the gap in the literature to model the dependence between electricity and natural gas prices in a context of energy transition, we propose a stochastic-copula approach where the stochastic component includes the observed stylized facts: seasonality, mean reversion and jumps. Using European electricity and natural gas day-ahead prices between 2015 and 2020, we estimate our suggested stochastic model and examine several copula functions. We find that energy firms are more exposed to price risk with the acceleration of the electrification of the economy and, therefore, producers tend to avoid a high exposure to the electricity volatility. Our findings are also relevant for policymakers since green investments should be promoted with economic mechanisms to fix the electricity price generated by renewables. Keywords: Energy transition; Electricity; Natural gas; Copula functions; Jump-diffusion; Mean reversion (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:105:y:2021:i:c:s0264999321002601 DOI: 10.1016/j.econmod.2021.105671 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.