A history of European electricity day-ahead prices

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In this article, we examine the development of day-ahead prices in five European markets which became more connected over recent years. Where previous studies examined the convergence of price levels over time, we focus on patterns in estimates for the parameters in a switching regimes model. This makes it possible to distinguish between prices under normal market conditions and under non-normal market conditions, those market conditions that can cause extreme price spikes. We expect that increased connectivity yields additional supply in the short-term and therefore will reduce the impact of price spikes. Our results indicate that the impact of price spikes and volatility decreased over time, that prices behave more random, and that the parameter estimates between various connected markets seem to have converged between the Belgian, Dutch, French, German and Nordic day-ahead markets over the years 2003 through 2010. These results can be explained by increased connectivity and improved liquidity.

Keywords: C51; F02; G14; Q40; electricity day-ahead prices; price spikes; switching regimes model

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2012.665601

Affiliations: Erasmus School of Economics, Erasmus University Rotterdam, PO Box 1738 3000 DR, Rotterdam, The Netherlands

Publication date: June 1, 2013

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