Regime-switching models can be used to describe stochastic movements of electricityprices in deregulated markets. This paper shows that regime-switching dynamics arisequite naturally in an equilibrium context in which the functional form of the supplycurve is described by a two-state Markov process. This mechanism is responsible forrandom switches between regimes and it allows one to describe the main features of theprice-formation process. With the interplay between demand and supply, the proposedmethodology can be used to capture shortages in electricity generation, forced outages,and peaks in electricity demand. As an example of application, a two-regime modelspecification is proposed, and it will be shown that the empirical analysis, performed byestimating using the model on the California power market, offers an interesting agreement with observed data.
Regime switches induced by supply-demand equilibruim: a model for power prices dynamics
TONDINI, Daniela;
2010-01-01
Abstract
Regime-switching models can be used to describe stochastic movements of electricityprices in deregulated markets. This paper shows that regime-switching dynamics arisequite naturally in an equilibrium context in which the functional form of the supplycurve is described by a two-state Markov process. This mechanism is responsible forrandom switches between regimes and it allows one to describe the main features of theprice-formation process. With the interplay between demand and supply, the proposedmethodology can be used to capture shortages in electricity generation, forced outages,and peaks in electricity demand. As an example of application, a two-regime modelspecification is proposed, and it will be shown that the empirical analysis, performed byestimating using the model on the California power market, offers an interesting agreement with observed data.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
