A Multifactor Approach to Modelling the Impact of Wind Energy on Electricity Spot Prices

74 Pages Posted: 3 Feb 2018 Last revised: 8 Jul 2021

See all articles by Paulina A. Rowińska

Paulina A. Rowińska

Imperial College London - Department of Mathematics

Almut Veraart

Imperial College London; CREATES

Pierre Gruet

EDF Energy - EDF Electricité de France

Date Written: July 7, 2021

Abstract

We introduce a four-factor arithmetic model for electricity baseload spot prices in Germany and Austria. The model consists of a deterministic seasonality and trend function, both short- and long-term stochastic components, and exogenous factors such as the daily wind energy production forecasts, the residual demand and the wind penetration index.
We describe the short-term stochastic factor by a L{\'e}vy semi-stationary (LSS) process, and the long-term component is modelled as a L{\'e}vy process with increments belonging to a class of generalised hyperbolic distributions.

We derive the corresponding futures prices and develop an inference methodology for our multi-factor model. The methodology allows to infer the various factors in a step-wise procedure taking empirical spot prices, futures prices and wind energy production and total load data into account.

Our empirical work shows that taking into account the impact of the wind energy generation on the prices improves the goodness of fit. Moreover, we demonstrate that the class of LSS processes can be used for modelling the exogenous variables including wind energy production, residual demand and the wind penetration index.

Keywords: CARMA model, Electricity spot prices, Electricity futures prices, Lévy process, Lévy semistationary process, Wind energy

JEL Classification: C0, C1, C3, C5, Q4

Suggested Citation

Rowińska, Paulina A. and Veraart, Almut and Gruet, Pierre, A Multifactor Approach to Modelling the Impact of Wind Energy on Electricity Spot Prices (July 7, 2021). Available at SSRN: https://ssrn.com/abstract=3110554 or http://dx.doi.org/10.2139/ssrn.3110554

Paulina A. Rowińska

Imperial College London - Department of Mathematics ( email )

South Kensington Campus
Imperial College
LONDON, SW7 2AZ
United Kingdom

Almut Veraart (Contact Author)

Imperial College London ( email )

Department of Mathematics
180 Queen's Gate
London, SW7 2AZ

CREATES ( email )

Aarhus University
DK-8000 Aarhus C
Denmark

Pierre Gruet

EDF Energy - EDF Electricité de France ( email )

France

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