Modeling Electricity Prices: International Evidence

32 Pages Posted: 6 Feb 2002  

Álvaro Escribano

Universidad Carlos III de Madrid - Department of Economics

Juan Ignacio Peña

Universidad Carlos III de Madrid - Department of Business Administration

Pablo Villaplana

Comisión Nacional de Energía

Date Written: June 2002

Abstract

This paper analyses the evolution of electricity prices in deregulated markets. We present a general model that simultaneously takes into account the possibility of several factors: seasonality, mean reversion, GARCH behaviour and time-dependent jumps. The model is applied to equilibrium spot prices of electricity markets from Argentina, Australia (Victoria), New Zealand (Hayward), NordPool, and Spain using daily data. Six different nested models were estimated to compare the relative importance of each factor and their interactions. We obtained that electricity prices are mean-reverting with strong volatility (GARCH) and jumps of time-dependent intensity even after adjusting for seasonality. We also provide a detailed unit root analysis of electricity prices against mean reversion, in the presence of jumps and GARCH errors, and propose a new powerful procedure based on bootstrap techniques.

Keywords: electricity prices, seasonality, mean reversion, GARCH, jumps, unit root test, bootstrap

JEL Classification: C13, C22, G10, L94

Suggested Citation

Escribano, Álvaro and Peña, Juan Ignacio and Villaplana, Pablo, Modeling Electricity Prices: International Evidence (June 2002). EFMA 2002 London Meetings; EFA 2002 Berlin Meetings Presented Paper. Available at SSRN: https://ssrn.com/abstract=299360 or http://dx.doi.org/10.2139/ssrn.299360

Álvaro Escribano

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 6249854 (Phone)
+34-91 6249329 (Fax)

HOME PAGE: http://www.eco.uc3m.es/english/staff/contact_info/

Juan Ignacio Peña

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain
34 91 624 9625 (Phone)
34 91 624 9608 (Fax)

Pablo Villaplana (Contact Author)

Comisión Nacional de Energía ( email )

Alcalá, 47
Madrid, Madrid 28014
Spain

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