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On transition probabilities of regime switching in electricity prices

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  • Kanamura, Takashi
  • O[combining macron]hashi, Kazuhiko

Abstract

We analyze the transition probabilities of regime switching in electricity prices by explicitly incorporating the underlying demand/supply structure. We show that the transition probabilities of electricity prices cannot be constant, and depend on both the current demand level relative to the supply capacity and the trends of demand fluctuation. These results not only contrast with the assumption of constant transition probabilities on which many regime-switching models are built, but also provide new insights on the determinants of the state-dependent transition probabilities of regime switching.

Suggested Citation

  • Kanamura, Takashi & O[combining macron]hashi, Kazuhiko, 2008. "On transition probabilities of regime switching in electricity prices," Energy Economics, Elsevier, vol. 30(3), pages 1158-1172, May.
    • Handle: RePEc:eee:eneeco:v:30:y:2008:i:3:p:1158-1172
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    References listed on IDEAS

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    5. Kanamura, Takashi & Ohashi, Kazuhiko, 2007. "A structural model for electricity prices with spikes: Measurement of spike risk and optimal policies for hydropower plant operation," Energy Economics, Elsevier, vol. 29(5), pages 1010-1032, September.
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