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Analysis of the fundamental predictability of prices in the British balancing market

Journal

IEEE Transactions on Power Systems

Subject

Management Science and Operations

Publishing details

IEEE Transactions on Power Systems 2021 March Vol 36:2 p 1309-1316

Authors / Editors

Bunn D W;Inekwe J N;MacGeehan D

Biographies

Derek Bunn

Publication Year

2021

Abstract

This research analyses the non-linear and complex effects of drivers of system imbalance prices in the GB electricity market. Unlike day-ahead prices, the balancing settlement prices are comparatively under-researched, yet their importance is growing with greater market risks. The fundamental drivers of these prices are analysed over 2016-2019. The result of a nonlinear modelling approach reveals that system imbalance price exhibits a regime-switching behaviour, driven by weather and demand forecast errors, as well as other system effects. Surprisingly, balancing prices are predictable out of sample and a regime switching specification is more accurate than a linear model for prediction.

Keywords

Electricity imbalance prices; Balancing market; Regime switching; Forecasting

Available on ECCH

No


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