Intra-day and regime-switching dynamics in electricity price formation
Nektaria V. Karakatsani and
Derek W. Bunn
Energy Economics, 2008, vol. 30, issue 4, 1776-1797
This paper analyses the complex, non-linear effects of spot price drivers in wholesale electricity markets: their intra-day dynamics and transient irregularities. The context is the UK market, after the reforms introduced in March 2001, analysed with an original set of price drivers reflecting economic, technical, strategic, risk, behavioural and market design effects. Models are estimated separately as daily time-series of the 48 half-hourly trading periods. All coefficients exhibit substantial intra-day variation, relating to the heterogeneity of operating plants and market design aspects. This reveals a market responding to economic fundamentals and plant operating properties, with learning and emergent financial characteristics, as well as some strategic manipulation of capacity, most effectively exercised by the more flexible plants. Using regime-switching parameters, the effects of capacity margin and inter-day capacity adjustment are elucidated, suggesting rent-seeking behaviour, despite the relatively low prices at the time. Overall, high-frequency, aggregate fundamental price models can usefully uncover critical aspects of market performance, evolution and agent behaviour.
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:30:y:2008:i:4:p:1776-1797
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