An Hourly Electricity Price Model, a Robust Trading Policy, and the Value of Storage, for Heavy-Tailed Markets
نویسندگان
چکیده
We propose a new model for electricity prices that captures the heavy-tailed behavior that we observe in the hourly spot market in the Ercot (Texas) and the PJM West hub grids. We present a model according to which we separate the price process into a thin-tailed trailing-median process and a heavy-tailed residual process whose probability distribution can be approximated by a Cauchy distribution. We show empirical evidence that supports our model. Then, we present a quantile-based policy for trading electricity that is robust in the heavy-tailed market. From the expected annual pro t corresponding to the trading policy, we assess the break-even cost for electricity storage via discounted cash ow analysis.
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