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What is the Probability of an Electricity Price Spike? Evidence from the UK Power Market

In: HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations

Author

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  • Paweł Maryniak
  • Rafał Weron

Abstract

We study the forward-looking information concerning nation-wide electricity demand and generation that is available to all participants in the UK market and measure its predictive power with respect to forecasting the occurrence of price spikes for horizons ranging from 2 days to 2 weeks. Considering a 14-year period (19 January 2003–31 December 2016), we find that — irrespective of the spike identification algorithm and except for the first 3 years of data — the probability of observing a spike is approximately an exponentially increasing function of the demand-to-capacity ratio. This is in contrast to an earlier study on the UK power market which reported that ca. 85% of spikes occurred when the demand-to-capacity ratio was in the range [0.908, 0.960].

Suggested Citation

  • Paweł Maryniak & Rafał Weron, 2020. "What is the Probability of an Electricity Price Spike? Evidence from the UK Power Market," World Scientific Book Chapters, in: Stéphane Goutte & Duc Khuong Nguyen (ed.), HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations, chapter 10, pages 231-245, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813278387_0010
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    Cited by:

    1. Andersson, Jonas & Sheybanivaziri, Samaneh, 2023. "Probabilistic forecasting of electricity prices using an augmented LMARX-model," Discussion Papers 2023/11, Norwegian School of Economics, Department of Business and Management Science.

    More about this item

    Keywords

    Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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