Working Papers, Department of Economics, Lund University
Joint Modelling of Power Price, Temperature, and Hydrological Balance with a View towards Scenario Analysis
Abstract: This study presents a model for the joint dynamics of
power price, temperature, and hydrological balance, with a view towards
scenario analysis. Temperature is a major demand-side factor affecting
power prices, while hydrobalance is a major supply-side factor in power
markets dominated by hydrological generation, such as the Nordic market.
Our time series modelling approach coupled with the skew-Student
distribution allows for interrelations in both mean and volatility, and
accommodates most of the discovered empirical features, such as periodic
patterns and long memory. We find that in the Nordic market, the
relationship between temperature and power price is driven by the demand
for heating, while the cooling effect during summer months does not exist.
Hydrobalance, on the other hand, negatively affects power prices throughout
the year. We demonstrate how the proposed model can be used to generate a
variety of joint temperature/hydrobalance scenarios and analyse the
implications for power price.
Keywords: spot power price; temperature; hydrological scenarios; VARFIMA-BEKK; skew-Student; (follow links to similar papers)
JEL-Codes: C32; G17; Q41; (follow links to similar papers)
40 pages, November 13, 2016
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