Abstract
In this paper, we develop a general framework for the modelling of Australian electricity market risk based on the structural relationships in the market. The model framework is designed to be consistent with temperature and load mean forecasts, market forward price quotes, the dependence of load on temperature, and the dependence of price on load. The primary use of the model is for the accurate evaluation of the market risk of an electricity generation and retail company but it can also be used for the valuation of electricity market derivatives and assets. We demonstrate the application of our framework to the Australian National Electricity Market (NEM).
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Notes
- 1.
In reality the dispatch algorithm co-optimises the dispatch for the energy as well as ancilliary service markets, and across all regions, taking into account interconnector flows and constraints.
- 2.
See Sect. 2.9 in Clewlow and Strickland (1999) for details.
- 3.
We omit 2012 from the price model estimation as carbon pricing was introduced into the market in July 2012.
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Breslin, J., Clewlow, L., Strickland, C. (2014). A Multi-factor Structural Model for Australian Electricity Market Risk. In: Dieci, R., He, XZ., Hommes, C. (eds) Nonlinear Economic Dynamics and Financial Modelling. Springer, Cham. https://doi.org/10.1007/978-3-319-07470-2_19
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