A Structural Model for Electricity Prices with Spikes - Measurement of Jump Risk and Optimal Policies for Hydropower Plant Operation

Hitotsunbashi University ICS Finance Working Paper No. FS-2004-E-02

36 Pages Posted: 2 Jul 2004

See all articles by Takashi Kanamura

Takashi Kanamura

Kyoto University - Graduate School of Advanced Integrated Studies in Human Survivability (GSAIS)

Kazuhiko Ohashi

Hitotsubashi University - Graduate School of International Corporate Strategy

Date Written: June 20, 2004

Abstract

This paper proposes a new, structural model for electricity prices. We show that unlike other electricity price models, such as the jump diffusion model and the Box-Cox transformation model, the structural model can directly and accurately incorporate the relationship between electricity demand and price spikes.

We also illustrate the usefulness of the structural model for optimal power generation and risk management using the example of a pump-storage hydropower plant.

The structural model can describe the probability of price spikes easily in terms of electricity demand, and provides more realistic optimal operation policies than the jump diffusion model.

Keywords: electricity, price spike, demand/supply, optimal power generation

JEL Classification: C61, D21, G13, L94, Q40

Suggested Citation

Kanamura, Takashi and Ohashi, Kazuhiko, A Structural Model for Electricity Prices with Spikes - Measurement of Jump Risk and Optimal Policies for Hydropower Plant Operation (June 20, 2004). Hitotsunbashi University ICS Finance Working Paper No. FS-2004-E-02, Available at SSRN: https://ssrn.com/abstract=560603 or http://dx.doi.org/10.2139/ssrn.560603

Takashi Kanamura

Kyoto University - Graduate School of Advanced Integrated Studies in Human Survivability (GSAIS) ( email )

1, Yoshida-Nakaadachi-cho, Sakyo-ku,
Kyoto, 606-8306
Japan
81-75-762-2004 (Phone)
81-75-762-2004 (Fax)

Kazuhiko Ohashi (Contact Author)

Hitotsubashi University - Graduate School of International Corporate Strategy ( email )

Tokyo 101-8439, Chiyoda-ku
Japan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
521
Abstract Views
4,143
rank
57,644
PlumX Metrics