Analysis of the Fundamental Predictability of Prices in the British Balancing Market

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 driver...

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Bibliographic Details
Published in:IEEE transactions on power systems 2021-03, Vol.36 (2), p.1309-1316
Main Authors: Bunn, Derek W., Inekwe, John N., MacGeehan, David
Format: Article
Language:English
Subjects:
Balancing
balancing market
Economic forecasting
Electricity imbalance prices
Forecasting
Generators
Predictive models
Prices
Pricing
Production
Real-time systems
regime-switching
Switches
Switching
Weather forecasting
Wind forecasting
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Summary: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.
ISSN:0885-8950
1558-0679
DOI:10.1109/TPWRS.2020.3015871