A spot-forward model for electricity prices with regime shifts

Florentina Paraschiv, Stein-Erik Fleten and Michael Schürle
Authors registered in the RePEc Author Service: Michael Schuerle

Energy Economics, 2015, vol. 47, issue C, 142-153

Abstract: We propose a novel regime-switching approach for electricity prices in which simulated and forecasted prices are consistent with currently observed forward prices. Additionally, the model is able to reproduce spikes and negative prices. We distinguish between a base regime as well as upper and lower spike regimes. We derive hourly price forward curves for EEX Phelix, and together with historical hourly spot prices, historical hourly price forward curves are the basis for model calibration. The model can be used for simulation and forecasting of electricity spot prices over short- and medium-term horizons. Tests imply that it shows a better performance than classical time series approaches.

Keywords: Electricity prices; Regime-switching model; Negative prices; Spikes; Price forward curves (search for similar items in EconPapers)
JEL-codes: C51 C53 C58 G17 Q41 Q47 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:47:y:2015:i:c:p:142-153

DOI: 10.1016/j.eneco.2014.11.003

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