2006 | OriginalPaper | Chapter
Econometric Modeling of Electricity Prices
Author : Stefano Fiorenzani
Published in: Quantitative Methods for Electricity Trading and Risk Management
Publisher: Palgrave Macmillan UK
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In the previous chapter we noted that the main scope of an econometric model is that of describing in the best possible way the interrelation existing among different economic variables. Applying this idea to the study of electricity price dynamics we have the possibility to investigate the relation that links electricity prices (dependent variable of the model) to other economic drivers such as, for example, electricity consumption. This relationship can be expressed in mathematical terms by a simple and generic functional representation of the following type: <m:math display=’block’> <m:mrow> <m:msub> <m:mi>E</m:mi> <m:mi>t</m:mi> </m:msub> <m:mo>=</m:mo><m:mi>f</m:mi><m:mrow><m:mo>(</m:mo> <m:mrow> <m:msub> <m:mi>X</m:mi> <m:mrow> <m:mi>i</m:mi><m:mi>t</m:mi> </m:mrow> </m:msub> </m:mrow> <m:mo>)</m:mo></m:mrow> </m:mrow> </m:math>]]</EquationSource><EquationSource Format="TEX"><![CDATA[{E_t} = f\left( {{X_{it}}} \right)where Xi represents the value of the i-th generic explanatory variable.