The Influence of Temperature on Spike Probability in Day-Ahead Power Prices

Abstract

It is well known that day-ahead prices in power markets exhibit spikes. These spikes are sudden increases in the day-ahead price that occur because power production is not flexible enough to respond to demand and/or supply shocks in the short term. This paper focuses on how temperature influences the probability on a spike. The paper shows that the difference between the actual and expected temperature significantly influences the probability on a spike and that the impact of temperature on spike probability depends on the season.

Keywords: Temperature, Day-ahead power price, Power production, Spike probability