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Uncertainty in electricity markets from a semi-nonparametric approach

Alfredo Trespalacios (), Lina Cortés () and Javier Perote ()

Energy Policy, 2020, vol. 137, issue C

Abstract: This paper introduces a semi-nonparametric (SNP) methodology for the modeling of skewness, leptokurtosis and high-order moments in electricity markets. We highlight the importance of accurately measuring these features in many contexts (e.g. design of power plants with different technologies, fuel prices, and energy demand) and the need for using flexible non-normal densities. We show that the SNP approach describes the uncertainty in an electricity markets, reducing the limitations that normality and parametric density functions impose. Our application covers a wide variety of Colombian electricity variables, including spot price, national energy demand, the climate index ONI, and the series of hydrologic inflows for different rivers. For such variables we find that the SNP outperforms the normal distribution in terms of accuracy measures based on maximum likelihood estimation. As a result, our methodology has direct applications for risk analysis and portfolio choice related to electricity markets and for implementing policies on electricity markets that improve efficiency and sustainability.

Keywords: Electricity markets; Semi-nonparametric modeling; Risk management (search for similar items in EconPapers)
Date: 2020
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Working Paper: Uncertainty in Electricity Markets from a seminonparametric Approach (2019) Downloads
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DOI: 10.1016/j.enpol.2019.111091

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