Analysis of the fundamental predictability of prices in the British balancing market

Bunn, D W, Inekwe, J N and MacGeehan, D (2020) Analysis of the fundamental predictability of prices in the British balancing market. IEEE Transactions on Power Systems. ISSN 0885-8950 (In Press) OPEN ACCESS

Abstract

This research analyses the non-linear and complex effects of drivers of system imbalance prices in the GB electricity market. Unlike day-ahead prices, the balancing settlement prices are comparatively under-researched, yet their importance is growing with greater market risks. The fundamental drivers of these prices are analysed over 2016-2019. The result of a nonlinear modelling approach reveals that system imbalance price exhibits a regime-switching behaviour, driven by weather and demand forecast errors, as well as other system effects. Surprisingly, balancing prices are predictable out of sample and a regime switching specification is more accurate than a linear model for prediction.

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Item Type: Article
Subject Areas: Management Science and Operations
Additional Information:

© 2020 IEEE. Published in: IEEE Transactions on Power Systems (Early Access) https://doi.org/10.1109/TPWRS.2020.3015871

Personal use of this material is permitted. Permission from IEEE must be obtained for all other uses, in any current or future media, including reprinting/republishing this material for advertising or promotional purposes, creating new collective works, for resale or redistribution to servers or lists, or reuse of any copyrighted component of this work in other works.

Date Deposited: 19 Aug 2020 11:41
Date of first compliant deposit: 17 Aug 2020
Subjects: M > Market forecasting
E > Electricity supply industry
Last Modified: 03 Oct 2020 04:58
URI: https://lbsresearch.london.edu/id/eprint/1457
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