The book presents a common framework for modeling and forecasting two crucial processes for energy companies: electricity loads and prices. The statistical approach that Weron adopts is crucial because it allows for direct input of relevant statistical properties into the models. It is also useful because physical interpretation can be attached to the components of the models, allowing engineers and system operators to better understand the power markets behaviour. It provides an in-depth review of statistical methods that can be used to analyze the dynamics of electricity prices and loads and to forecast their levels. Part 1 contains a comprehensive overview of the functioning of the power markets in Europe, North America and Australia/New Zealand. Understanding the details of the operation of those markets is essential for appreciation of statistical techniques developed in subsequent chapters. Part 2 develops fundamental statistics of power markets related to such important phenomena as price spikes, seasonality, and other time series techniques. Advanced tools such as wavelet analysis and the theory of stable distributions are introduced. All of the above are convincingly employed in several case studies. Parts 3 and 4 address, respectively, the issues of modeling and forecasting of electricity loads, and of electricity prices. Various kinds of autoregressive schemes are discussed. In the case of pricing, a very important tool of jump-diffusions is explained and the use of hedging and derivatives is explored.
Book Details:
- Author: Rafal Weron
- ISBN: 9780470057537
- Year Published: 2006
- Pages: 192
- BISAC: BUS027000, BUSINESS & ECONOMICS/Finance
About the Book and Topic:
The book presents a common framework for modeling and forecasting two crucial processes for energy companies: electricity loads and prices. The statistical approach that Weron adopts is crucial because it allows for direct input of relevant statistical properties into the models. It is also useful because physical interpretation can be attached to the components of the models, allowing engineers and system operators to better understand the power markets behaviour. It provides an in-depth review of statistical methods that can be used to analyze the dynamics of electricity prices and loads and to forecast their levels. Part 1 contains a comprehensive overview of the functioning of the power markets in Europe, North America and Australia/New Zealand. Understanding the details of the operation of those markets is essential for appreciation of statistical techniques developed in subsequent chapters. Part 2 develops fundamental statistics of power markets related to such important phenomena as price spikes, seasonality, and other time series techniques. Advanced tools such as wavelet analysis and the theory of stable distributions are introduced. All of the above are convincingly employed in several case studies. Parts 3 and 4 address, respectively, the issues of modeling and forecasting of electricity loads, and of electricity prices. Various kinds of autoregressive schemes are discussed. In the case of pricing, a very important tool of jump-diffusions is explained and the use of hedging and derivatives is explored.
Forecasting of electricity prices and loads is a critical function for both regulated utilities and power marketers. Regulated utilities make short-term decisions regarding unit commitment and long-term decisions regarding capacity expansion, fuel acquisitions and electricity purchases from the power markets, relying on the forecasts of prices and expected loads. Power marketers in the US and European markets often enter into so-called full requirements transactions under which they commit to satisfying the entire electricity needs of their customers (alternatively a percentage slice of their total system load or the load of a certain class of customers). This means that a power marketer entering into such a transaction has to absorb both the volumetric risk (the risk related to load fluctuations) and the price risk, as well as the risks resulting from the interactions of these two factors (the risk related to the need to satisfy unexpected load under the conditions of spiking market prices of electricity) there have been a number of occasions where full load requirements resulted in huge losses because they were based on imperfect load forecasts and incorrect assumptions regarding the probability distributions or energy prices. Another important activity which requires solid understanding of price and load probability distributions is hedging. The quality of hedges depends on a good understanding of the co-movement of electricity prices and fuel prices and the ability to model prices and loads using an integrated framework based on solid theoretical foundations.
Provides original statistical tools that have been tried and tested through the authors own consultancy work The book uses two computing environments (Matlab and SAS) making it appealing to a wide range of readers An increasingly important topic both in the US and Europe due to the transactional commitment of power marketers to satisfying the entire electricity needs of customers
About the Author
Dr Rafal Weron, Wroclaw, Poland is Assistant Professor at the Hugo Steinhaus Center for Stochastic Methods in Poland. He has an MSc in Mathematical Statistics and a PhD in Mathematics. He is the author of several books on financial engineering verification of the yield curve pricing software for LUKAS Bank, S.A Poland.