Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/40688 
Year of Publication: 
2008
Series/Report no.: 
Nota di Lavoro No. 2008,9
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
In the last decades a liberalization of the electric market has started; prices are now determined on the basis of contracts on regular markets and their behaviour is mainly driven by usual supply and demand forces. A large body of literature has been developed in order to analyze and forecast their evolution: it includes works with different aims and methodologies depending on the temporal horizon being studied. In this survey we depict the actual state of the art focusing only on the recent papers oriented to the determination of trends in electricity spot prices and to the forecast of these prices in the short run. Structural methods of analysis, which result appropriate for the determination of forward and future values are left behind. Studies have been divided into three broad classes: Autoregressive models, Regime switching models, Volatility models. Six fundamental points arise: the peculiarities of electricity market, the complex statistical properties of prices, the lack of economic foundations of statistical models used for price analysis, the primacy of uniequational approaches, the crucial role played by demand and supply in prices determination, the lack of clearcut evidence in favour of a specific framework of analysis. To take into account the previous stylized issues, we propose the adoption of a methodological framework not yet used to model and forecast electricity prices: a time varying parameters Dynamic Factor Model (DFM). Such an eclectic approach, introduced in the late '70s for macroeconomic analysis, enables the identification of the unobservable dynamics of demand and supply driving electricity prices, the coexistence of short term and long term determinants, the creation of forecasts on future trends. Moreover, we have the possibility of simulating the impact that mismatches between demand and supply have over the price variable. This way it is possible to evaluate whether congestions in the network (eventually leading black out phenomena) trigger price reactions that can be considered as warning mechanisms.
Subjects: 
Electricity Spot Prices
Autoregressive Models
GARCH Models
Regime Switching Models
Dynamic Factor Models
JEL: 
C2
C3
Q4
Document Type: 
Working Paper

Files in This Item:
File
Size
474.25 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.