The Case of Negative Day-Ahead Electricity Prices

Fanone, Enzo; Gamba, Andrea; Prokopczuk, Marcel

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The Case of Negative Day-Ahead Electricity Prices

Energy Economics, Vol. 35, No. 1, 2013

WBS Finance Group Research Paper No. 158

46 Pages Posted: 13 May 2011 Last revised: 26 Dec 2019

See all articles by Enzo Fanone

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Date Written: October 15, 2011

Abstract

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

Suggested Citation: Suggested Citation

Fanone, Enzo and Gamba, Andrea and Prokopczuk, Marcel, The Case of Negative Day-Ahead Electricity Prices (October 15, 2011). Energy Economics, Vol. 35, No. 1, 2013, WBS Finance Group Research Paper No. 158, Available at SSRN: https://ssrn.com/abstract=1839208