Risk factors in the formulation of day-ahead electricity prices: Evidence from the Spanish case

Eleftheria G. Paschalidou and Nikolaos S. Thomaidis

Energy Economics, 2025, vol. 142, issue C

Abstract: This study investigates the dynamic connection between Spanish day-ahead electricity prices and various fundamental determinants, including average surface temperature, forecasted electricity demand, predicted renewable energy injection, natural gas futures prices and CO2 emission rights cost. Structural Dynamic Factor Models (SDFM) are employed to decompose each hourly price signal into systematic components linked to any of the fundamental indices mentioned above and unveil structural shocks moving the entire panel of variables. Empirical results indicate that Spanish day-ahead electricity prices have a strong fundamental basis; a great deal of their observed short- or long-run variations are explained by changes in temperature, load, renewable energy supply, natural gas and carbon permit cost.

Keywords: Day-ahead electricity market; Fundamental analysis; Structural dynamic factor models; Multi-level factor models (search for similar items in EconPapers)
JEL-codes: C14 C32 C52 C55 Q41 Q42 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988324008119

DOI: 10.1016/j.eneco.2024.108102

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