Journal of Energy Markets

A two-stage nonlinear approach for modeling hourly spot power prices with an application to spot market risk valuation of the power yield of a solar array in Germany

Peter Kosater

  • We propose an extension of an existing Markov regime switching model approach for German hourly spot power prices by combination with a SARMA - model to incorporate intra-daily and weekly seasonalities.
  • Top down modelling of German wind power with a Markov regime switching ACD-Weibull model is put forward.
  • A bottom-up model for the hourly power yield of a solar panel is also incorporated.
  • A risk-adjusted price for a PPA with yearly power production of a solar panel as underlying is determined.

In this paper we extend an existing Markov regime-switching model approach for power spot prices by combining it with a seasonal autoregressive moving average model, which allows us to incorporate intraday and weekly seasonalities. In addition, we also put forward top-down models for wind power, solar power and power load. Moreover, we present a bottom-up model for the hourly power yield of a solar panel. Finally, we exploit the aforementioned models to simulate the hourly price and solar panel power yield paths in order to estimate the spot market risk of a small hypothetical solar array in the context of a power purchase agreement (PPA). PPAs allow the risk transfer from renewable plant operators to more trading and risk management skilled market participants. Spot market risk arises because neither the volume nor the exact power spot prices are known when PPAs are concluded.

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