Forecasting spikes in electricity prices

Timothy Christensen, A. S. Hurn, K. A. Lindsay

    Research output: Contribution to journalArticle

    Abstract

    In many electricity markets, retailers purchase electricity at an unregulated spot price and sell to consumers at a heavily regulated price. Consequently, the occurrence of spikes in the spot electricity price represents a major source of risk for retailers, and the forecasting of these price spikes is important for effective risk management. Traditional approaches to modelling electricity prices have aimed to predict the trajectory of spot prices. In contrast, this paper focuses on the prediction of price spikes. The time series of price spikes is treated as a discrete-time point process, and a nonlinear variant of the autoregressive conditional hazard model is used to model this process. The model is estimated using half-hourly data from the Australian electricity market for the period 1 March 2001 to 30 June 2007. One-step-ahead forecasts of the probability of a price spike are then generated for each half hour in the forecast period, 1 July 2007 to 30 September 2007. The forecasting performance of the model is then evaluated against a benchmark that is consistent with the assumptions of commonly-used electricity pricing models.

    Original languageEnglish (US)
    Pages (from-to)400-411
    Number of pages12
    JournalInternational Journal of Forecasting
    Volume28
    Issue number2
    DOIs
    StatePublished - Apr 2012

    Fingerprint

    Electricity price
    Electricity market
    Spot price
    Retailers
    Purchase
    Forecasting performance
    Trajectory
    Discrete-time
    Electricity
    Process model
    Point process
    Benchmark
    Modeling
    Risk management
    Prediction
    Hazard models
    Electricity pricing

    Keywords

    • Autoregressive conditional duration
    • Autoregressive conditional hazard
    • Electricity futures
    • Electricity prices
    • Price spikes

    ASJC Scopus subject areas

    • Business and International Management

    Cite this

    Forecasting spikes in electricity prices. / Christensen, Timothy; Hurn, A. S.; Lindsay, K. A.

    In: International Journal of Forecasting, Vol. 28, No. 2, 04.2012, p. 400-411.

    Research output: Contribution to journalArticle

    Christensen, Timothy ; Hurn, A. S. ; Lindsay, K. A. / Forecasting spikes in electricity prices. In: International Journal of Forecasting. 2012 ; Vol. 28, No. 2. pp. 400-411.
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