Electricity spot price modeling by multi-factor uncertain process: a case study from the Nordic region

Area of Science:

• Economics
• Financial Mathematics
• Energy Markets

Background:

• Energy market liberalization necessitates advanced modeling techniques.
• Traditional probabilistic models face limitations due to market complexity and policy changes.
• Accurate electricity spot price dynamics are crucial for market participants.

Purpose of the Study:

• To propose a novel uncertain two-factor model for electricity spot price dynamics.
• To investigate essential electricity market indicators within the proposed framework.
• To provide generalized moment estimation for model parameters.

Main Methods:

• Development of an uncertain two-factor model using uncertain differential equations.
• Application of generalized moment estimation for parameter identification.
• Comparative analysis with existing one-factor uncertain and stochastic electricity price models.

Main Results:

• The proposed two-factor uncertain model accurately captures electricity spot price dynamics.
• The model demonstrates superior performance compared to one-factor uncertain and stochastic models.
• Case studies from Oslo and Stockholm validate the model's effectiveness.

Conclusions:

• The uncertain two-factor model provides a more reliable framework for electricity spot price evaluation.
• This approach addresses the limitations of traditional probabilistic methods in dynamic energy markets.
• The model offers valuable insights for energy market analysis and decision-making.