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SSRN Electronic Journal
Article . 2008 . Peer-reviewed
Data sources: Crossref
https://dx.doi.org/10.22004/ag...
Other literature type . 2008
Data sources: Datacite
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Modeling Electricity Prices: From the State of the Art to a Draft of a New Proposal

Authors: Serati, Massimiliano; Manera, Matteo; Plotegher, Michele; Serati, Massimiliano; Manera, Matteo; Plotegher, Michele;

Modeling Electricity Prices: From the State of the Art to a Draft of a New Proposal

Abstract

In the last decades a liberalization of the electric market has started; prices are now determined on the basis of contracts on regular markets and their behaviour is mainly driven by usual supply and demand forces. A large body of literature has been developed in order to analyze and forecast their evolution: it includes works with different aims and methodologies depending on the temporal horizon being studied. In this survey we depict the actual state of the art focusing only on the recent papers oriented to the determination of trends in electricity spot prices and to the forecast of these prices in the short run. Structural methods of analysis, which result appropriate for the determination of forward and future values are left behind. Studies have been divided into three broad classes: Autoregressive models, Regime switching models, Volatility models. Six fundamental points arise: the peculiarities of electricity market, the complex statistical properties of prices, the lack of economic foundations of statistical models used for price analysis, the primacy of uniequational approaches, the crucial role played by demand and supply in prices determination, the lack of clearcut evidence in favour of a specific framework of analysis. To take into account the previous stylized issues, we propose the adoption of a methodological framework not yet used to model and forecast electricity prices: a time varying parameters Dynamic Factor Model (DFM). Such an eclectic approach, introduced in the late ‘70s for macroeconomic analysis, enables the identification of the unobservable dynamics of demand and supply driving electricity prices, the coexistence of short term and long term determinants, the creation of forecasts on future trends. Moreover, we have the possibility of simulating the impact that mismatches between demand and supply have over the price variable. This way it is possible to evaluate whether congestions in the network (eventually leading black out phenomena) trigger price reactions that can be considered as warning mechanisms.

Keywords

Resource /Energy Economics and Policy, Demand and Price Analysis, Electricity Spot Prices, Electricity Spot Prices, Autoregressive Models, GARCH Models, Regime Switching Models, Dynamic Factor Models, GARCH Models, Dynamic Factor Models, Autoregressive Models, Regime Switching Models, jel: jel:Q4, jel: jel:C2, jel: jel:C3

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citations
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
7
Average
Average
Average
bronze
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Energy Research