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The Impact of Regulatory Reforms on Demand Weighted Average Prices

Sherzod N. Tashpulatov
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Sherzod N. Tashpulatov: Department of Economics, Management and Humanities, Faculty of Electrical Engineering, Czech Technical University in Prague, Technická 2, 166 27 Prague 6, Czech Republic

Mathematics, 2021, vol. 9, issue 10, 1-15

Abstract: Average prices are popularly used in the literature on price modeling. Calculating daily or weekly prices as an average over hourly or half-hourly trading periods assumes the same weight ignoring demand or traded volumes during those periods. Analyzing demand weighted average prices is important if producers may affect prices by decreasing them during low-demand periods and increasing them during high-demand periods within a day. The prediction of this price manipulation might have motivated the regulatory authority to introduce price caps not only on annual average prices but also on annual demand weighted average prices in the England and Wales wholesale electricity market. The dynamics of demand weighted average prices of electricity has been analyzed little in the literature. We show that skew generalized error distribution (SGED) is the appropriate assumption for model residuals. The estimated volatility model is used for evaluating the impact of regulatory reforms on demand weighted average prices during the complete history of the England and Wales wholesale electricity market.

Keywords: demand weighted average prices of electricity; volatility; asymmetry; heavy tails; SGED; maximum likelihood estimation; Kullback–Leibler distance; regulation (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
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