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Open Access research with a European policy impact...

The Strathprints institutional repository is a digital archive of University of Strathclyde's Open Access research outputs. Strathprints provides access to thousands of Open Access research papers by Strathclyde researchers, including by researchers from the European Policies Research Centre (EPRC).

EPRC is a leading institute in Europe for comparative research on public policy, with a particular focus on regional development policies. Spanning 30 European countries, EPRC research programmes have a strong emphasis on applied research and knowledge exchange, including the provision of policy advice to EU institutions and national and sub-national government authorities throughout Europe.

Explore research outputs by the European Policies Research Centre...

Analysis of relationships between hourly electricity price and demand in deregulated real-time power markets

Lo, K.L. and Wu, Y. (2004) Analysis of relationships between hourly electricity price and demand in deregulated real-time power markets. IEE Proceedings Generation Transmission and Distribution, 151 (4). pp. 441-452. ISSN 1350-2360

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Abstract

Risk management in the electric power industry involves measuring the risk for all instruments owned by a company. The value of many of these instruments depends directly on electricity prices. In theory, the wholesale price in a real-time market should reflect the short-run marginal cost. However, most markets are not perfectly competitive, therefore by understanding the degree of correlation between price and physical drivers, electric traders and consumers can manage their risk more effectively and efficiently. Market data from two power-pool architectures, both pre-2003 ISO-NE and Australia's NEM, have been studied. The dynamic character of electricity price is mean-reverting, and consists of intra-day and weekly variations, seasonal fluctuations, and instant jumps. Parts of them are affected by load demands. Hourly signals on both price and load are divided into deterministic and random components with a discrete fourier transform algorithm. Next, the real-time price-load relationship for periodic and random signals is examined. In addition, time-varying volatility models are constructed on random price and random load with the GARCH (1,1) model, and the correlation between them analysed. Volatility plays a critical role on evaluating option pricing and risk management.