Conditionally independent increment processes for modeling electricity prices with regard to renewable power generation

Abstract

Renewable energies have become responsible for a large part of the variation in electricity prices. We offer a new approach that makes it possible to represent this dependency in a flexible way. This allows to vary especially price spikes both in direction and size according to the generation of wind and solar power. The proposed concept is based on the construction of a process with conditionally independent increment. We provide an estimation procedure for them and offer a test to verify the dependency on an external variable. Based on the theoretical results, we fit an electricity price model for the German intraday market and use it to analyze power cap/floor prices.