The Case of Negative Day-Ahead Electricity Prices
46 Pages Posted: 13 May 2011 Last revised: 26 Dec 2019
Date Written: October 15, 2011
In recent years, Germany has significantly increased its share of electricity produced from renewable sources, which is mainly due to the Renewable Energy Act (EEG). The EEG substantially impacts the dynamics of intra-day electricity prices by increasing the likelihood of negative prices. In this paper, we present a non-Gaussian process to model German intra-day electricity prices and propose an estimation procedure for this model. Most importantly, our model is able to generate extreme positive and negative spikes. A simulation study demonstrates the ability of our model to capture the characteristics of the data.
Keywords: Electricity, Lèvy processes, Price spikes, Negative prices
JEL Classification: C51, C63, Q40, Q20
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