On the Construction of Hourly Price Forward Curves for Electricity Prices

Posted: 30 Sep 2016 Last revised: 1 Mar 2018

See all articles by Ruediger Kiesel

Ruediger Kiesel

University of Duisburg-Essen - Faculty of Economic Science

Florentina Paraschiv

Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School; University of St. Gallen, Institute for Operations Research and Computational Finance

Audun Sætherø

University of Duisburg-Essen - Faculty of Economic Science

Date Written: January 31, 2018

Abstract

There are several approaches in the literature for the derivation of price forward curves (PFCs) which distinguish among each other by the procedure employed for the derivation of seasonality shapes, smoothing technique and by the design of the optimization procedure. However, a comparative study to highlight the strengths and weaknesses of different methods is missing. For the construction of PFCs we typically incorporate the information about market expectation from the observed futures prices and the deterministic seasonal effects of electricity prices. In most existing approaches, the seasonality shape is fitted to historically observed spot prices, and it is an exogenous input to the optimization procedure. As seasonal effects on electricity prices differ between markets, our model allows a more general and flexible definition of the seasonality shape. In this study, we propose an alternative calibration procedure for the seasonality shape, where the level of futures as well as historical spot prices are simultaneously taken into account in a joint optimization approach. We discuss comparatively the features of existing methods for PFCs, and highlight the advantages of our optimization procedure.

Keywords: Hourly Price Forward Curves, modelling, electricity markets

Suggested Citation

Kiesel, Ruediger and Paraschiv, Florentina and Sætherø, Audun, On the Construction of Hourly Price Forward Curves for Electricity Prices (January 31, 2018). Available at SSRN: https://ssrn.com/abstract=2845302 or http://dx.doi.org/10.2139/ssrn.2845302

Ruediger Kiesel

University of Duisburg-Essen - Faculty of Economic Science ( email )

Essen, 45117
Germany

HOME PAGE: http://www.lef.wiwi.uni-due.de/

Florentina Paraschiv

Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School ( email )

Klæbuveien 72
Trondheim, NO-7030
Norway

University of St. Gallen, Institute for Operations Research and Computational Finance ( email )

Bodanstrasse 6
St. Gallen, 9000
Switzerland

Audun Sætherø (Contact Author)

University of Duisburg-Essen - Faculty of Economic Science ( email )

Essen, 45117
Germany

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