Causal modeling and inference for electricity markets

How does dynamic price information flow among Northern European electricity spot prices and prices of major electricity generation fuel sources? We use time series models combined with new advances in causal inference to answer these questions. Applying our methods to weekly Nordic and German electr...

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Bibliographic Details
Published in:Energy economics 2011-05, Vol.33 (3), p.404-412
Main Authors: Ferkingstad, Egil, Løland, Anders, Wilhelmsen, Mathilde
Format: Article
Language:English
Subjects:
Applied sciences
Causal discovery
Causal inference
Causality
Coal
Directed acyclic graph
Dynamics
Economic data
Economics
Electric energy
Electric rates
Electricity
Electricity markets
Energy
Energy economics
Energy market
Energy prices
Exact sciences and technology
Fossil fuels and derived products
Gasoline prices
General, economic and professional studies
Germany
Inference
Market analysis
Mathematical models
Methodology. Modelling
Modelling
Natural energy
Natural gas
Non-experimental data
Non-Gaussianity
Nordic countries
Prices
Studies
Time series
Vector autoregression
Vector autoregression Vector error correction Electricity markets Causal discovery Non-Gaussianity Directed acyclic graph Non-experimental data
Vector error correction
Vector-autoregressive models
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Summary:How does dynamic price information flow among Northern European electricity spot prices and prices of major electricity generation fuel sources? We use time series models combined with new advances in causal inference to answer these questions. Applying our methods to weekly Nordic and German electricity prices, and oil, gas and coal prices, with German wind power and Nordic water reservoir levels as exogenous variables, we estimate a causal model for the price dynamics, both for contemporaneous and lagged relationships. In contemporaneous time, Nordic and German electricity prices are interlinked through gas prices. In the long run, electricity prices and British gas prices adjust themselves to establish the equilibrium price level, since oil, coal, continental gas and EUR/USD are found to be weakly exogenous.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2010.10.006