A Hyperbolic Bid Stack Approach to Electricity Price Modelling

Krisztina Katona (), Christina Sklibosios Nikitopoulos and Erik Schlogl
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Krisztina Katona: Finance Discipline Group, UTS Business School, University of Technology Sydney, Sydney, NSW 2007, Australia
Christina Sklibosios Nikitopoulos: Finance Discipline Group, UTS Business School, University of Technology Sydney, Sydney, NSW 2007, Australia

Risks, 2023, vol. 11, issue 8, 1-39

Abstract: Modelling the energy price in the Australian National Electricity Market (NEM) requires features that are not well reflected in existing models. We present a semi-structural, multi-regional model wherein bidding is not required to be cost-based, renewable fuels and storage technology are structurally integrated, and network constraints are often binding in optimal dispatch. Available fuel capacity then does not necessarily sum to registered bid capacity, as-bid fuel costs do not dependably follow input fuel prices, and cross-regional interconnectedness requires modelling trade. Furthermore, modelling the NEM spot price path must admit price negativity and price spikes. Extending previous work in the literature, the present paper proposes a hyperbolic bid stack approach to price modelling under these conditions.

Keywords: electricity price modelling; bid stack functions; network constraint effects; structural price model; fundamental price model (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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