Abstract
In this paper bivariate modelling methodology, solely applied to the spot price of electricity or demand for electricity in earlier studies, is extended to a bivariate process of spot price of electricity and demand for electricity. The suggested model accommodates common idiosyncrasies observed in deregulated electricity markets such as cyclical trends in price and demand for electricity, occurrence of extreme spikes in prices, and mean-reversion effect seen in settling of prices from extreme values to the mean level over a short period of time. The paper presents detailed statistical analysis of historical data of daily averages of electricity spot prices and corresponding demand for electricity. The data is obtained from the NSW section of Australian Energy Markets.
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