A Fundamental Model for Intraday Electricity Trading

Abstract

This paper develops a fundamental price model for intraday electricity markets of 15-minute contracts. A unique data set of intradaily updated forecasts of renewable power generation is analyzed. We use a threshold regression model to examine how 15-minute intraday trading depends on the slope of the merit order curve. Our estimation results reveal strong evidence of mean reversion in the price formation mechanism of 15-minute contracts. Additionally, prices of neighboring contracts exhibit strong explanatory power and a positive impact on prices of a given contract. We observe an asymmetric effect of renewable forecast changes on intraday prices depending on the merit-order-curve slope. In general, renewable forecasts have a higher explanatory power at noon than in the morning and evening, but price information is the main driver of 15-minute intraday trading.

Keywords: Continuous intraday electricity market; Fundamental model; 15-minute contracts; Renewable power forecasts; Merit order curve; Threshold regression

JEL Classification: C22; C24; C55; G10; Q20; Q21; Q40; Q41; Q42