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

Derek W. Bunn, John Inekwe, David Macgeehan

Research output: Contribution to journalArticle

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.
Original languageEnglish
JournalIEEE Transactions on Power Systems
DOIs
Publication statusE-pub ahead of print - 11 Aug 2020

Keywords

  • Electricity Imbalance Prices
  • Balancing Market
  • Regime-switching
  • Forecasting

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