Nonlinear empirical pricing in electricity markets using fundamental weather factors
A nonlinear factor model based on fundamental weather variables, in addition to market-related variables, is proposed for modeling the price of electricity. The full conditional distribution of electricity prices using quantile regressions is modeled and the effect of weather factors on upside and d...
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Published in | Energy (Oxford) Vol. 139; pp. 594 - 605 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Oxford
Elsevier Ltd
15.11.2017
Elsevier BV |
Subjects | |
Online Access | Get full text |
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Summary: | A nonlinear factor model based on fundamental weather variables, in addition to market-related variables, is proposed for modeling the price of electricity. The full conditional distribution of electricity prices using quantile regressions is modeled and the effect of weather factors on upside and downside risks in the electricity market is analyzed. Data from the Nord Pool is used to fit the proposed model to a wide and highly integrated market, as well as several individual national markets, and to search for possible asymmetries in both individual and aggregated levels of the price dynamics. By doing so, important differences across countries and quantiles in the price responses to weather variations are documented, but mostly extensive evidence in favor of the quantile-factor model based on weather variables is provided.
•A nonlinear factor model for electricity prices is proposed.•The model is based on weather factors and it is controlled by market factors.•The effect of weather factors is analyzed across price quantiles.•Wind and temperature have the most significant effects over Nord Pool prices.•Weather asymmetrically affects prices across quantiles and markets. |
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ISSN: | 0360-5442 1873-6785 |
DOI: | 10.1016/j.energy.2017.07.181 |