A Joint Model for Electricity Spot Prices and Wind Penetration with Dependence in the Extremes
This article analyses the dependence between electricity spot prices and the wind penetration index in the European energy market. The wind penetration index is given by the ratio of the wind energy production divided by the total electricity production. We find that the wind penetration has an impact on the intensity of the spike occurrences in the electricity prices, and we formulate a joint model for electricity prices and wind penetration and calibrate it to recent data. We then use the new joint model in an application where we assess the impact of the modelling assumptions on the potential income of an electricity distributor who buys electricity from a wind farm operator.
KeywordsDependence modelling Spikes Doubly stochastic Poisson process CAR processes Electricity prices Wind penetration index
We would like to thank Olivier Féron for his constructive comments on an earlier draft of this article. This research is supported by the department OSIRIS (Optimization, SImulation, RIsk and Statistics for Energy Markets) of EDF and by the FiME (Finance for Energy Markets) Research Initiative which is greatfully acknowledged.
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