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Title:A Markov switching model of the merit order to compare British and German price formation PDF Logo
Authors:Zachmann, Georg
Issue Date:2007
Series/Report no.:Discussion papers // German Institute for Economic Research 714
Abstract:The objective of this paper is to develop a model to determine the price formation of wholesale electricity markets. For that purpose, we model wholesale electricity prices depending on the prices of fuels (coal and natural gas) and of CO2 emission allowances using a Markov Switching Regression. We apply the model to wholesale electricity prices in the UK and in Germany. While British electricity prices are quite well explained by short-run cost factors, we find a decoupling between electricity prices and fuel costs in Germany. This may be evidence that the German electricity generation sector does not work competitively.
Subjects:Electricity Prices
Markov Switching Models
JEL:L94
C22
D43
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
DIW-Diskussionspapiere

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