Modeling the UK electricity price distributions using quantile regression

Hagfors, L I and Bunn, D W and Kristoffersen, E and Staver, T T and Westgaard, S (2016) Modeling the UK electricity price distributions using quantile regression. Energy, 102. pp. 231-243. ISSN 0360-5442

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Official URL: http://www.sciencedirect.com/science/article/pii/S...

Abstract

In this paper we develop fundamental quantile regression models for the UK electricity price in each trading period. Intraday properties of price risk, as represented by the predictive distribution rather than expected values, have previously not been fully analyzed. The sample covers half hourly data from 2005 to 2012. From our analysis we are able to show how the sensitivity towards different fundamental factors changes across quantiles and time of day. In the UK the supply of electricity is to a large extent generated from coal and gas plants, thus the price of gas and coal, as well as the carbon emission price, are included as fundamental factors in our model. We also include the electricity price lagged by one day, as well as demand and margin forecasts. We find that the sensitivities vary across the price distribution. Our findings also suggest that the sensitivity to fundamental factors exhibit intraday variation. We find that the sensitivity to gas relative to coal is higher in high quantiles and lower in low quantiles, as well as some indications of market power being exercised during peak hours. We have demonstrated a scenario analysis based on the quantile regression models, showing how changes in the values of the fundamentals influence the electricity price distribution.

Item Type: Article
Additional Information: © 2016 Elsevier
Subjects: P > Price theory
E > Electricity supply industry
R > Risk
Subject Areas: Management Science and Operations
DOI: 10.1016/j.energy.2016.02.025
Date Deposited: 30 Aug 2016 13:47
Last Modified: 15 Mar 2017 12:18
URI: http://lbsresearch.london.edu/id/eprint/546

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