Analysis of the Fundamental Predictability of Prices in the British Balancing Market
Derek W. Bunn, John Nkwoma Inekwe, David MacGeehan
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 non-linear 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.
Topics & Concepts
PredictabilityEconomicsElectricity marketEconometricsElectricityElectric power systemSettlement (finance)Power (physics)EngineeringMathematicsStatisticsElectrical engineeringPaymentFinanceQuantum mechanicsPhysicsElectric Power System OptimizationEnergy Load and Power ForecastingPower System Reliability and Maintenance