Spikes and Memory in (Nord Pool) Electricity Price Spot Prices

18 Pages Posted: 18 Dec 2017

See all articles by Tommaso Proietti

Tommaso Proietti

University of Rome II - Department of Economics and Finance

Niels Haldrup

Aarhus University, School of Economics and Management; CREATES

Oskar Knapik

University of Aarhus

Date Written: November 13, 2017

Abstract

Electricity spot prices are subject to transitory sharp movements commonly referred to as spikes. The paper aims at assessing their effects on model based inferences and predictions, with reference to the Nord Pool power exchange. We identify a spike as a price value which deviates substantially from the normal price, where the latter is defined as the expectation arising from a model accounting for long memory at the zero and at the weekly seasonal frequencies, given the knowledge of the past realizations. Hence, a spike is associated to a time series innovation with size larger than a specified threshold. The latter regulates the robustness of the estimates of the underlying price level and it is chosen by a data driven procedure that focuses on the ability to predict future prices. The normal price is computed by a modified Kalman filter, which robustness the inferences by cleaning the spikes, i.e. shrinking an observation deviating substantially from the normal price towards the one-step-ahead prediction. Our empirical application illustrates the effects of the spikes on the estimates of the parameters governing the persistence of the series; moreover, a real time rolling forecasting exercise is used to establish the amount of cleaning for optimizing the predicting accuracy at different horizons.

Keywords: Robustness; Kalman Filter; Long Memory

JEL Classification: C22, C53, Q41

Suggested Citation

Proietti, Tommaso and Haldrup, Niels and Knapik, Oskar, Spikes and Memory in (Nord Pool) Electricity Price Spot Prices (November 13, 2017). CEIS Working Paper No. 422. Available at SSRN: https://ssrn.com/abstract=3088704 or http://dx.doi.org/10.2139/ssrn.3088704

Tommaso Proietti (Contact Author)

University of Rome II - Department of Economics and Finance ( email )

Via Columbia, 2
Rome, 00133
Italy

Niels Haldrup

Aarhus University, School of Economics and Management ( email )

Universitetsparken
Aarhus, DK 8000 C
Denmark
+45 8942 1133 (Phone)
+45-8613-6334 (Fax)

CREATES ( email )

School of Economics and Management
Aarhus University
Aarhus, DK 8000 C
Denmark
+4589421613 (Phone)

HOME PAGE: http://www.creates.au.dk/en

Oskar Knapik

University of Aarhus ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

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