What is the Probability of an Electricity Price Spike? Evidence from the UK Power Market

Paweł Maryniak and Rafał Weron

Chapter 10 in Handbook of Energy Finance:Theories, Practices and Simulations, 2020, pp 231-245 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We study the forward-looking information concerning nation-wide electricity demand and generation that is available to all participants in the UK market and measure its predictive power with respect to forecasting the occurrence of price spikes for horizons ranging from 2 days to 2 weeks. Considering a 14-year period (19 January 2003–31 December 2016), we find that — irrespective of the spike identification algorithm and except for the first 3 years of data — the probability of observing a spike is approximately an exponentially increasing function of the demand-to-capacity ratio. This is in contrast to an earlier study on the UK power market which reported that ca. 85% of spikes occurred when the demand-to-capacity ratio was in the range [0.908, 0.960].

Keywords: Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets (search for similar items in EconPapers)
JEL-codes: G20 G32 Q40 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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