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Modelling Spikes in Electricity Prices

Becker, Ralf & Hurn, Stan (2007) Modelling Spikes in Electricity Prices. Economic Record, 83(263), pp. 371-382.

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Abstract

uring periods of market stress, electricity prices can rise dramatically. Electricity retailers cannot pass these extreme prices on to customers because of retail price regulation. Improved prediction of these price spikes therefore is important for risk management. This paper builds a time-varying-probability Markov-switching model of Queensland electricity prices, aimed particularly at forecasting price spikes. Variables capturing demand and weather patterns are used to drive the transition probabilities. Unlike traditional Markov-switching models that assume normality of the prices in each state, the model presented here uses a generalised beta distribution to allow for the skewness in the distribution of electricity prices during high-price episodes.

Impact and interest:

16 citations in Scopus
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13 citations in Web of Science®

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ID Code: 32529
Item Type: Journal Article
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Deposited On: 07 Jun 2010 12:22
Last Modified: 29 Feb 2012 23:33

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