Bunn, Derek, Andresen, Arne, Dipeng Chen, and Westgaard, Sjur
Energy Journal. Jan2016, Vol. 37 Issue 1, p101-122. 22p.
Prices, Market volatility, Risk management in business, Coal sales & prices, and Electricity research
Forecasting quantile and value-at-risk levels for commodity prices is methodologically challenging because of the distinctive stochastic properties of the price density functions, volatility clustering and the importance of exogenous factors. Despite this, accurate risk measures have considerable value in trading and risk management with the topic being actively researched for better techniques. We approach the problem by using a multifactor, dynamic, quantile regression formulation, extended to include GARCH properties, and applied to both in-sample estimation and out-of-sample forecasting of traded electricity prices. This captures the specification effects of mean reversion, spikes, time varying volatility and demonstrates how the prices of gas, coal and carbon, forecasts of demand and reserve margin in addition to price volatility influence the electricity price quantiles. We show how the price coefficients for these factors vary substantially across the quantiles and offer a new, useful synthesis of GARCH effects within quantile regression. We also show that a linear quantile regression model outperforms skewed GARCH-t and CAViaR models, as specified on the shocks to conditional expectations, regarding the accuracy of out-of-sample forecasts of value-at-risk. [ABSTRACT FROM AUTHOR]
Prices, Economic equilibrium, Market volatility, GARCH model, Electricity, and Electric power systems
This article analyses the evolution of electricity prices in deregulated markets. We present a general class of models that simultaneously takes into account several factors: seasonality, mean reversion, GARCH behaviour and time-dependent jumps. The models are applied to daily equilibrium spot prices of eight electricity markets. Eight different nested models were estimated to compare the relative importance of each factor in each of the eight markets. We find strong evidence that electricity equilibrium prices are mean-reverting, with volatility clustering (GARCH) and with jumps of time-dependent intensity, even after adjusting for seasonality. [ABSTRACT FROM AUTHOR]
Energy Journal. 2010, Vol. 31 Issue 2, p173-198. 26p.
Market volatility, Arbitrage, Interest (Finance), Prices, Corporate profits, Energy consumption, and Electricity
Increases in electricity price volatility have raised interest in electricity storage and its potential arbitrage value. Large utility-scale electricity storage can decrease the value of energy arbitrage by smoothing differences in prices on- and off-peak, however this price-smoothing effect can result in significant external welfare gains by reducing consumer energy costs and generator profits. As such, the incentives of merchant storage operators, consumers, and generators may not be properly aligned to ensure socially-optimal storage use. We examine storage use incentives for these different agent types and show that under most reasonable market structures a combination of merchant and consumer ownership of storage maximizes potential welfare gains from storage use. [ABSTRACT FROM AUTHOR]
Economic policy, Electric utilities, Price regulation, Prices, Financial markets, Market volatility, Trade regulation, and Electricity
The volatility of spot prices has been a notable feature of the English and Welsh Electricity Pool since its formation in 1990. This study investigates the possibility that the volatility of spot prices is strongly affected by the functioning of the contract market for electricity. This paper suggest that generators with market power may have an incentive to create volatility in the spot market in order to benefit from higher risk premia in the contract market. A simple theoretical model is used to illustrate this argument. Nonparametric techniques are used to test for changes in volatility after the expiry of the coal contracts in 1993 and during the price cap of 1994–1996. Strongly significant increases in volatility are found in the latter period. [ABSTRACT FROM AUTHOR]
Prices, Market volatility, Wholesale prices, Economic competition, Economics, and Electricity
A “pay-as-offered” or discriminatory price auction (DPA) has been proposed to solve the problem of inflated and volatile wholesale electricity prices. Using the experimental method we compare the DPA with a uniform price auction (UPA), strictly controlling for unilateral market power. We find that a DPA indeed substantially reduces price volatility. However, in a no market power design, prices in a DPA converge to the high prices of a uniform price auction with structural market power. That is, the DPA in a no market power environment is as anti-competitive as a UPA with structurally introduced market power. [ABSTRACT FROM AUTHOR]
This paper investigates the intraday price volatility process in four Australian wholesale electricity markets; namely New South Wales, Queensland, South Australia and Victoria. The data set consists of half-hourly electricity prices and demand volumes over the period January 1, 2002 to June 1, 2003. A range of processes including GARCH, RiskMetrics, normal Asymmetric Power ARCH or APARCH, Student APARCH and skewed Student APARCH are used to model the time-varying variance in prices and the inclusion of news arrival as proxied by the contemporaneous volume of demand, time-of-day, day-of-week and month-of-year effects as exogenous explanatory variables. The skewed Student APARCH model, which takes account of right skewed and fat tailed characteristics, produces the best results in all four markets. The results indicate significant innovation (ARCH effects) and volatility (GARCH effects) spillovers in The conditional standard deviation equation, even with market and calendar effects included. Intraday prices also exhibit significant asymmetric responses of volatility to the flow of information. [ABSTRACT FROM AUTHOR]
Market volatility, Risk, Prices, Electricity, and U.S. states
This paper examines the volatility of wholesale electricity prices for five US markets. Using data covering the period from May 1996 to September 2001, for the California-Oregon Border, Palo Verde, Cinergy, Entergy, and Pennsylvania-New Jersey-Maryland markets, we examine the volatility of electricity wholesale prices over time and across markets. We estimate volatility using a TARCH model to study the differences among markets and the seasonal characteristics of each market. For all markets, we find strong evidence for a downward trend in the ARCH term and a significant negative asymmetric effect over the sample period. We also document important differences among the regional electricity markets not only with respect to wholesale price volatility and seasonal variations, but also with respect to asymmetric properties and persistence of volatility. [ABSTRACT FROM AUTHOR]
Energy Economics. Nov2012, Vol. 34 Issue 6, p2058-2065. 8p.
Prices, Market volatility, Energy economics, Vector error-correction models, Dynamics, Electricity, and Caloric expenditure
Abstract: The purpose of this study is to investigate the causal linkages between the Spanish electricity, Brent crude oil and Zeebrugge (Belgium) natural gas 1-month-ahead forward prices. Following Lütkepohl et al. (2004), we control for the presence of a structural change in the series and then we use the Johansen cointegration test and a vector error correction model (VECM) to embrace the analysis. Additionally, a multivariate generalized autoregressive conditional heteroskedastic (GARCH) model is applied to explore volatility interactions between the three markets involved in the study. Our findings reveal that Brent crude oil and Zeebrugge natural gas forward prices play a prominent role in the Spanish electricity price formation process. Furthermore, causation, both in price and volatility, runs from Brent crude oil and natural gas forward markets to the Spanish electricity forward market. These results are of practical importance for both the wholesale and retail markets'' participants as well as the regulator through the established link between the forward contracts'' price and the Spanish tariff of last resort paid by more than 23million of customers. [Copyright &y& Elsevier]
International Journal of Theoretical & Applied Finance. Mar2010, Vol. 13 Issue 2, p285-299. 15p. 4 Charts, 8 Graphs.
Prices, Nonparametric statistics, Estimation theory, Market volatility, and Electricity
We propose a simple univariate model for the dynamics of spot electricity prices. The model is nonparametric in the sense that it is free from parametric model assumptions and flexible in capturing the dynamics of the data. The estimation is performed in two steps. Preliminarily, spikes are identified by means of an iterative filtering technique. The series of spikes is used to estimate a seasonal spike intensity function and fitted with an exponential law. We then implement Nadaraya-Watson estimators for the drift and the diffusion coefficients on the filtered series. Monte Carlo simulations are used to evaluate estimation errors. We fit the model on European and American time series of spot day-ahead electricity prices; in spite of the simplicity of the proposed model, our specification tests indicate successful goodness-of-fit. We provide evidence for mean-reversion, nonlinear volatility and seasonal spike intensity; moreover we find that American markets show a very low level of mean reversion and a lower volatility with respect to their European counterparts. [ABSTRACT FROM AUTHOR]
Multivariate analysis, Prices, Market volatility, Electricity, and Natural gas
In this paper we specify and estimate a multivariate GARCH-M model of natural gas and electricity price changes, and test for causal relationships between natural gas and electricity price changes and their volatilities, using data over the deregulated period from January 1, 1996 to November 9, 2004 from Alberta's (deregulated) spot power and natural gas markets. The model allows for the possibilities of spillovers and asymmetries in the variance-covariance structure for natural gas and electricity price changes, and also for the separate examination of the effects of the volatility of anticipated and unanticipated changes in natural gas and electricity prices. [ABSTRACT FROM AUTHOR]
Purchasing, Prices, Market volatility, Cost control, Consumers, and Electricity
A solution technique is formulated and provided for the electricity procurement problem faced by a large consumer. The objective of this consumer is to minimise procurement cost while limiting the risk of cost fluctuation due to pool price volatility. Electricity sources include the pool, bilateral contracts and self-production. Uncertainty is related to electricity pool prices. A realistic case study is analysed and results presented. Conclusions are duly drawn. [ABSTRACT FROM AUTHOR]