Electricity Price spirals now or later: An emerging market experience

Abstract

Time series models have been employed to identify the structural breaks and the existence of volatility based on the behavior and direction of electricity prices. The models were tuned and validated with dataset consisting of the daily spot electricity prices of 13 bid areas of the Indian exchange-traded market for ten years. The Indian exchange-traded market is a diversified market divided into 13 bid areas, each consisting of states with unique trading characteristics. Hence it is vital to conduct an in-depth analysis of each to identify the problematic areas, key reasons behind it and further tame it, which has never been done before. The results revealed that the bid areas S1 and S2 depicts negative leverage effect predominantly due to the elections and transmission constraints. Whereas rest of the areas shows positive result with less price spirals due to changes in regulation, weather and new operational plants. Insights from the research encourages power market participants to further apply forecasting techniques and prepare a price risk mitigation model and reach out at a global level.