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Modelling price spikes in electricity markets - the impact of load, weather and capacity

Author

Listed:
  • Rangga Handika
  • Chi Truong
  • Stefan Trueck
  • Rafal Weron

Abstract

We examine the impact of explanatory variables such as load, weather and capacity constraints on the occurrence and magnitude of price spikes in regional Australian electricity markets. We apply the so-called Heckman correction, a two-stage estimation procedure that allows us to investigate the impact of the considered variables on extreme price observations only, while correcting for a selection bias due to non-random sampling in the analysis. The framework is applied to four regional electricity markets in Australia and it is found that for these markets, load, relative air temperature and reserve margins are significant variables for the occurrence of price spikes, while electricity loads and relative air temperature are significant variables to impact on the magnitude of a price spike. The Heckman selection model is also found to outperform standard OLS regression models with respect to forecasting the magnitude of electricity price spikes.

Suggested Citation

  • Rangga Handika & Chi Truong & Stefan Trueck & Rafal Weron, 2014. "Modelling price spikes in electricity markets - the impact of load, weather and capacity," HSC Research Reports HSC/14/08, Hugo Steinhaus Center, Wroclaw University of Science and Technology.
    • Handle: RePEc:wuu:wpaper:hsc1408
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    References listed on IDEAS

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    2. Mardi Dungey & Ali Ghahremanlou & Ngo Van Long, 2017. "Strategic Bidding of Electric Power Generating Companies: Evidence from the Australian National Energy Market," CESifo Working Paper Series 6819, CESifo.

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    More about this item

    Keywords

    Electricity markets; Price spikes; Selection bias; Inverse Mills ratio; Heckman selection model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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