Performing price scenario analysis and stress testing using quantile regression: A case study of the Californian electricity market

Sjur Westgaard, Stein-Erik Fleten, Ahlmahz Negash, Audun Botterud, Katinka Bogaard and Trude Haugsvaer Verling

Energy, 2021, vol. 214, issue C

Abstract: This paper uses quantile regression to demonstrate how electricity price distributions are linked to fundamental supply and demand variables. It investigates the California electricity market (zone SP15) for selected trading hours using data from January 8, 2013 to September 24, 2016. The approach quantifies a non-linear relationship between the fundamentals and electricity prices, just as predicted by the merit order curve. Natural gas, greenhouse gas allowance prices and load all have a positive effect on electricity prices, with the effect increasing with the quantiles. In contrast, solar production and wind production both have a negative effect on electricity prices. The effect of solar production increases with quantiles, whereas the effect of wind production decreases with quantiles. This paper also includes a stress testing case study in which a producer faces the risk of high solar and wind production, and investigates the effect on the lower tail of the price distribution. Overall, the results demonstrate how the proposed approach can be a helpful risk management tool for participants in the electricity market.

Keywords: California electricity market; Quantile regression; Risk management (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:214:y:2021:i:c:s0360544220319034

DOI: 10.1016/j.energy.2020.118796

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