Asymmetric information in the German intraday electricity market

This paper investigates how private and public information about unplanned power plant outages impact intraday electricity prices in Germany. It uses data from the EPEX day-ahead and continuous intraday markets as well as market messages concerning unscheduled power plant non-usabilities from the European Energy Exchange (EEX) transparency platform. The results of an econometric analysis suggest that private and public information about unplanned power plant outages have a significant positive effect on the intraday price.Furthermore, this paper shows that a reduction of the lead time on the intraday market enhances the possibilities of traders reacting to unplanned non-usabilities: an increased impact of private information on the electricity price is observed. The results also confirm an asymmetric impact of private and public information on the intraday price after the lead time reduction on the power exchange. The findings contradict the main objectives of the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT), which stipulates that the possession of private information must not have an impact on electricity prices.     

Comparative analysis of features of Polish and Lithuanian Day-ahead electricity market prices

The goal of this article is to better understand the processes of electricity market price formation in Poland and Lithuania through an analysis of the features (volatility and spikes) of Lithuanian and Polish day-ahead electricity market prices and to assess how acquired electricity price features could affect the achievement of the main goals of the national energy policy. The following indicators have been calculated to determine electricity market price volatility: the oscillation coefficient, the coefficient of variation, an adjusted coefficient of variation, the standard deviation indicator, the daily velocity indicator (based on the overall average price) and the daily velocity indicator (based on the daily average price). Critical values for electricity market price have been calculated to evaluate price spikes. This analysis reveals that electricity market-price volatility is moderate in Poland and high in Lithuania. Electricity price spikes have been an observable phenomenon both in Lithuanian and in Polish day-ahead electricity markets, but they are more common in Lithuania, encompassing 3.15% of the time period analysed in Poland and 4.68% of the time period analysed in Lithuania. Volatile, spiking and increasing electricity prices in day-ahead electricity markets in Lithuania and Poland create preconditions and substantiate the relevance of implementation of the national energy policies and measures.     

The Spanish intraday market design: A successful solution to balance renewable generation?

The increasing penetration of renewable energy sources in Europe requires market mechanisms which allow an efficient balancing of these sources. This paper analyzes the participation of renewable generators in the Spanish intraday market. First, the organization of the intraday market and the short-term market mechanisms influencing intraday trading are described. After that, day-ahead and intraday market prices, as well as intraday trading volumes, are used to study the behavior of market agents in the Spanish intraday market. Regarding renewable generators, the influence of support schemes on the behavior of these agents in the intraday market is also analyzed. This paper shows that the Spanish intraday market has effectively contributed to renewable generation balancing. Despite this, market distortions have incentivized some renewable generators to arbitrate between the day-ahead and intraday markets, giving rise to higher system costs. Based on the presented analysis, it is argued that these distortions need to be removed from short-term markets to incentivize market parties, especially intermittent generators, to reduce forecast errors over time, improving economic efficiency and avoiding the use of costly balancing actions performed by the System Operator.     

Realized volatility and the influence of market measures on predictability: Analysis of Nord Pool forward electricity data

This is the first paper to utilize intra-daily high-frequency data and to apply known market measures for the prediction of volatility in the Nord Pool electricity forward market. The work is based on recent methods of separating realized volatility into two components: continuous and jump volatilities. In addition, the link between future price volatility and current observable economic variables is examined. The measures—trading volume, time-to-maturity, asymmetric effect from negative shocks, and intra-week seasonality—are assessed to identify improvements in day-ahead predictions. The model where the total variation is separated into its continuous and jump components is compared with the simpler heterogeneous autoregressive model of realized variation both in- and out-of-sample. The results show a strong degree of persistence in realized volatility, and significant impacts from the mentioned market measures when predicting Nord Pool forward price volatility. Hence, there is a clear preference for models accounting for the systematic impact of market measures to improve volatility assessment for tomorrow. Moreover, separating the total variation into continuous and jump components seems potentially useful when predicting day-ahead volatility.     

Good volatility,bad volatility: What drives the asymmetric connectedness of Australian electricity markets?

Efficient delivery of network services and the electricity infrastructure to meet the long-term consumer's interests are the main objectives and the strategies of a national electricity market, while the main interests of generators are to maximize their profit through pricing strategies. Therefore, the objective of this study is to explore whether electricity prices across the four Australian States display symmetric price volatility connectedness. The study is the first attempt in the literature to make use of intraday 5-min Australian dispatch electricity prices, spanning the period December 8th, 1998 to May 5th, 2016 to quantify asymmetries in volatility connectedness emerging from good, and bad volatility. The results provide supportive evidence that the Australian electricity markets are connected asymmetrically implying the presence of some degree of market power that is exercised by generators across regional electricity markets.     

Asymmetric volatility in European day-ahead power markets: A comparative microeconomic analysis

This paper uses high-frequency spot price data from fourteen wholesale electricity markets in Europe to analyze asymmetric volatility in European day-ahead power markets with Exponential GARCH (E-GARCH) and TARCH models. Our data set ranges from 1992 to 2015 and consists of approximately 926,000 observations. As such, this paper constitutes the most extensive and comprehensive work conducted so far on European power markets, to the best of our knowledge. Unlike most of the literature that treats price as a continuous variable and attempts to model its trajectory, this paper adopts a unique approach and regards each hour in a day a separate market. The results show, in post-2008 period, the most expensive electricity is consumed in Turkey, Ireland, and UK while the cheapest power is in Russia, Nordic countries, and Czech Republic. Russia, Poland, and Czech Republic have the least volatile markets while France, Ireland, and Portugal have the most volatile ones. Volatility has decreased in many European countries in post-2008 period. Besides, we find magnitude effect is usually larger than the leverage effect, meaning that the absolute value of price change is relatively more important than the sign of the change (whether it is an increase or a decrease) to explain volatility in European day-ahead power markets. Moreover, the results imply there is not a uniform inverse leverage effect in electricity prices; that is, price increases are more destabilizing in some European markets (e.g. Poland, Slovenia, Ireland, Netherlands) than comparable price decreases but vice versa also holds true in some other countries (e.g. Portugal and France). Leverage (or inverse leverage) effect in post-2008 period is relatively stronger in Portugal, France, and Ireland, but its impact is quite limited in Turkey and Germany. Furthermore, although the impact of seasonality on prices is obvious, a specific pattern cannot be identified. Finally, large changes in the volatility will affect future volatilities for a relatively longer period of time in Nordic countries, Ireland, and the UK while changes in current volatility will have less effect on future volatilities in Czech Republic, Russia, and Turkey.     

Are fundamentals enough? Explaining price variations in the German day-ahead and intraday power market

European electricity market participants are encouraged to balance intraday deviations from their day-ahead schedules via trades in the intraday market. Together with the increasing production of variable renewable energy sources (RES), the intraday market is gaining importance. We investigate the explanatory power of a fundamental modeling approach explicitly accounting for must-run operations of combined heat and power plants (CHP) and intraday peculiarities such as a shortened intraday supply stack. The fundamental equilibria between every hour's supply stack and aggregated demand in 2012 and 2013 are modeled to yield hourly price estimates. The major benefits of a fundamental modeling approach are the ability to account for non-linearities in the supply stack and the ability to combine time-varying information consistently. The empirical results show that fundamental modeling explains a considerable share of spot price variance. However, differences between the fundamental and actual prices persist and are explored using regression models. The main differences can be attributed to (avoided) start up-costs, market states and trading behavior.     

The effect of variable renewable energy sources on electricity price volatility: the case of the Iberian market

The relationship between variable renewable energy supply (V-RES) and electricity price volatility is a controversial issue in the economic literature. In general, the literature has been inconclusive about the sign of the impact of installed capacity of these technologies on price volatility. This paper investigates the impact of V-RES on price volatility for the Iberian Market of Electricity (MIBEL), in the period ranging from 2010 to 2015. Using regression analysis and EGARCH models, we conclude that V-RES, and more specifically wind power supply, heightens price volatility. Likewise, greater intraday variability of V-RES also induces higher price volatility. Finally, following an analysis of the connection with the French market, we find that market coupling could help alleviate the sensitivity of price volatility to wind power supply variability.     

Analyzing the impact of futures trading on spot price volatility: Evidence from the spot electricity market in France and Germany

This paper examines the impact of the introduction of electricity futures on the spot-price volatility of the French (Powernext) and German (EEX) electricity markets, as well as the degree of their price correlation over the period 2002–2011. Our working hypotheses were tested based on a bivariate VECM-GARCH model. The results indicate that the introduction of futures contracts in the French electricity market, as well as the launch of the joint futures market in these countries in 2009, has decreased spot price volatility. However, this effect was not as explicit for the German market, due to data specificities. Other interesting results are: the German market dominates and leads the long run price relationship; the impact of cooling needs on demand is greater than the impact of heating needs; there is a substantial systematic pattern of electricity prices and their respective volatilities during weekdays and holidays. Overall, results are supportive of policy making at the European Commission regarding electricity market integration.     

Electricity market price volatility: The case of Ontario

Price volatility analysis has been reported in the literature for most competitive electricity markets around the world. However, no studies have been published yet that quantify price volatility in the Ontario electricity market, which is the focus of the present paper. In this paper, a comparative volatility analysis is conducted for the Ontario market and its neighboring electricity markets. Volatility indices are developed based on historical volatility and price velocity concepts, previously applied to other electricity market prices, and employed in the present work. The analysis is carried out in two scenarios: in the first scenario, the volatility indices are determined for the entire price time series. In the second scenario, the price time series are broken up into 24 time series for each of the 24 h and volatility indices are calculated for each specific hour separately. The volatility indices are also applied to the locational marginal prices of several pricing points in the New England, New York, and PJM electricity markets. The outcomes reveal that price volatility is significantly higher in Ontario than the three studied neighboring electricity markets. Furthermore, comparison of the results of this study with similar findings previously published for 15 other electricity markets demonstrates that the Ontario electricity market is one of the most volatile electricity markets world-wide. This high volatility is argued to be associated with the fact that Ontario is a single-settlement, real-time market.     

Electricity price forecasting using sale and purchase curves: The X-Model

Our paper aims to model and forecast the electricity price by taking a completely new perspective on the data. It will be the first approach which is able to combine the insights of market structure models with extensive and modern econometric analysis. Instead of directly modeling the electricity price as it is usually done in time series or data mining approaches, we model and utilize its true source: the sale and purchase curves of the electricity exchange. We will refer to this new model as X-Model, as almost every deregulated electricity price is simply the result of the intersection of the electricity supply and demand curve at a certain auction. Therefore we show an approach to deal with a tremendous amount of auction data, using a subtle data processing technique as well as dimension reduction and lasso based estimation methods. We incorporate not only several known features, such as seasonal behavior or the impact of other processes like renewable energy, but also completely new elaborated stylized facts of the bidding structure. Our model is able to capture the non-linear behavior of the electricity price, which is especially useful for predicting huge price spikes. Using simulation methods we show how to derive prediction intervals for probabilistic forecasting. We describe and show the proposed methods for the day-ahead EPEX spot price of Germany and Austria.     

Energy resources’ seasonal/daily dependencies under coupled operation of day-ahead markets

ABSTRACT

Studies on the benefits of electricity markets integration are scarce. With particular attention to the Romanian day-ahead electricity market (DAM), we analyze electricity prices’ seasonality and volatility and observe whether changes occurred after the 4 M Market Coupling project implementation. The focus lies on assessing the seasonal and cyclical components of DAM prices and coal/wind-based electricity generation. We address the changes in time series’ models that occurred after the DAM coupling and determine stationary models for those time series. The Dickey–Fuller test, augmented with qualitative variables assigned to seasons, days of the week, and legal holidays is our proposed method. Market integration could not prevent price spikes. The post-coupling period is characterized by smaller differences between peak and off-peak prices. This might indicate a positive effect (ceteris paribus) of market coupling on reducing price volatility. Most price models show complex dependencies on seasons, days, and dummies.     

Trading behaviour on the continuous intraday market Elbas

Intraday markets for electricity allow for trading of energy until shortly before the period of delivery. This offers market participants a possibility to reduce their expected imbalances and to offer own unused flexibility. Because this form of distributed balancing before the period of delivery can be profitable for market participants as well as beneficial for system operations, intraday trading is expected to gain more importance in future, especially with increasing shares of variable renewable energy sources in the generation mix.So far, intraday markets are still a research field with many open questions. This paper contributes by a first analysis of intraday trades on Elbas, one of the European intraday markets. The analysis gives a detailed picture on trading activity and price development and is intended to improve understanding of continuous intraday trading.Findings include that trading activity differs significantly between price zones, that most trades occur in the last hours before gate closure and that market participants have to handle substantial price variations during the trading period. The paper also investigates the imbalance settlement rules in the Nordic countries and studies which effects one- and two-price imbalance settlement systems have on the market participants' profitability of intraday trading.     

Can market power in the electricity spot market translate into market power in the hedge market?

Electricity is a non-storable commodity frequently traded in complex markets characterized by oligopolistic structures and uniform-price auctions. Electricity prices have idiosyncratic patterns not addressed by the usual commodity pricing literature. This paper develops an electricity market model that allows for oligopoly, vertical integration, and a uniform-price auction mechanism. It derives a linear equilibrium relationship between spot prices and state variables affecting firms' costs and demand. It then applies a two-factor forward pricing model over the equilibrium spot price process, and shows that forward prices can be positively affected by spot market power. An empirical estimation of the model follows, using NZEM data.     

Pricing German Energiewende products: Intraday cap/floor futures

In this paper, we introduce a model for the pricing of German intraday cap/floor futures, introduced by the EEX in 2015. We give a thorough overview of the German intraday market and in particular introduce the ID₃ price index, which is the underlying for intraday cap/floor futures. To price these derivatives, we propose a Hull-White model from interest rate theory with seasonality from futures prices. We apply our theoretical results to market data and conduct an empirical analysis involving the initial fit and empirical distribution of intraday cap futures prices.     

Private and social benefits of a pumped hydro energy storage with increasing amount of wind power

In this paper, we calculate the long-term profitability of a pumped hydro energy storage (PHES) plant that is planned to be built in an old mine. We model the optimal PHES operation for several scenarios with different wind power penetration levels. Our modelling approach first involves estimating wholesale electricity prices for the day-ahead, intraday and balancing market as a function of wind power penetration. The estimated price profiles are implemented in a dynamic programming model, where the PHES plant maximises its balancing market revenue given the optimal commitment in the day-ahead market. We show that increasing the wind penetration changes the optimal PHES operation and increases the PHES profits. Additionally, we quantify how the costs of wind power balancing are affected by the PHES investment. Policy implications are drawn based on the estimated private and social benefits from the investment.     

Electricity market auction settings in a future Danish electricity system with a high penetration of renewable energy sources - A comparison of marginal pricing and pay-as-bid

The long-term goal for Danish energy policy is to be free of fossil fuels through the increasing use of renewable energy sources (RES) including fluctuating renewable electricity (FRE).The Danish electricity market is part of the Nordic power exchange, which uses a Marginal Price auction system (MPS) for the day-ahead auctions. The market price is thus equal to the bidding price of the most expensive auction winning unit. In the MPS, the FRE bid at prices of or close to zero resulting in reduced market prices during hours of FRE production. In turn, this reduces the FRE sources’ income from market sales. As more FRE is implemented, this effect will only become greater, thereby reducing the income for FRE producers.Other auction settings could potentially help to reduce this problem. One candidate is the pay-as-bid auction setting (PAB), where winning units are paid their own bidding price.This article investigates the two auction settings, to find whether a change of auction setting would provide a more suitable frame for large shares of FRE. This has been done with two energy system scenarios with different shares of FRE.From the analysis, it is found that MPS is generally better for the FRE sources. The result is, however, very sensitive to the base assumptions used for the calculations.     

Econometric analysis of 15-minute intraday electricity prices

The trading activity in the German intraday electricity market has increased significantly over the last years. This is partially due to an increasing share of renewable energy, wind and photovoltaic, which requires power generators to balance out the forecasting errors in their production. We investigate the bidding behaviour in the intraday market by looking at both last prices and continuous bidding, in the context of a reduced-form econometric analysis. A unique data set of 15-minute intraday prices and intraday-updated forecasts of wind and photovoltaic has been employed. Price bids are explained by prior information on renewables forecasts and demand/supply market-specific exogenous variables. We show that intraday prices adjust asymmetrically to both forecasting errors in renewables and to the volume of trades dependent on the threshold variable demand quote, which reflects the expected demand covered by the planned traditional capacity in the day-ahead market. The location of the threshold can be used by market participants to adjust their bids accordingly, given the latest updates in the wind and photovoltaic forecasting errors and the forecasts of the control area balances.     

Merit-order effects of renewable energy and price divergence in California’s day-ahead and real-time electricity markets

We answer two policy questions: (1) what are the estimated merit-order effects of renewable energy in the California Independent System Operator’s (CAISO’s) day-ahead market (DAM) and real-time market (RTM)? and (2) what causes the hourly DAM and RTM prices to systematically diverge? The first question is timely and relevant because if the merit-order effect estimates are small, California’s renewable energy development is of limited help in cutting electricity consumers’ bills but also has a lesser adverse impact on the state’s investment incentive for natural-gas-fired generation. The second question is related to the efficient market hypothesis under which the hourly RTM and DAM prices tend to converge. Using a sample of about 21,000 hourly observations of CAISO market prices and their fundamental drivers during 12/12/2012–04/30/2015, we document statistically significant estimates (p-value≤0.01) for the DAM and RTM merit-order effects. This finding lends support to California’s adopted procurement process to provide sufficient investment incentives for natural-gas-fired generation. We document that the RTM-DAM price divergence partly depends on the CASIO’s day-ahead forecast errors for system loads and renewable energy. This finding suggests that improving the performance of the CAISO’s day-ahead forecasts can enhance trading efficiency in California’s DAM and RTM electricity markets.     

Large-scale solutions

For more than a century, we have accepted the premise that once electricity is produced, it cannot be stored. This lack of storage causes extreme electricity price volatility (compared with other commodities) and hourly fluctuations in wholesale market prices, and has prompted specialized real-time markets that provide price fluctuations in 5- or 10-min intervals. The hourly volatility reflects the widely disparate costs of production from different resources that lead to a steep supply curve in most markets; that steep supply curve, coupled with highly variable demand and an inelastic demand curve in today's markets, makes for high volatility.