A Comparative Study of Factor Models for Different Periods of the Electricity Spot Price Market

TL;DR

This study compares 3- and 4-factor stochastic models for Austrian electricity spot prices across different market periods, introducing a novel MCMC calibration method and revealing model performance variations during crises and non-crisis times.

Contribution

It is the first to analyze stochastic electricity spot price models in the post-2021 market environment using a custom MCMC calibration approach.

Findings

4-factor model outperforms 3-factor model during non-crisis periods

Adding a second Gaussian base signal does not improve fit during crises

Develops a new MCMC method for model calibration

Abstract

Due to major shifts in European energy supply, a structural change can be observed in Austrian electricity spot price data starting from the second quarter of the year 2021 onward. In this work we study the performance of two different factor models for the electricity spot price in three different time periods. To this end, we consider three samples of EEX data for the Austrian base load electricity spot price, one from the pre-crises from 2018 to 2021, the second from the time of the crisis from 2021 to 2023 and the whole data from 2018 to 2023. For each of these samples, we investigate the fit of a classical 3-factor model with a Gaussian base signal and one positive and one negative jump signal and compare it with a 4-factor model to assess the effect of adding a second Gaussian base signal to the model. For the calibration of the models we develop a tailor-made Markov Chain Monte Carlo method based on Gibbs sampling. To evaluate the model adequacy, we provide simulations of the spot price as well as a posterior predictive check for the 3- and the 4-factor model. We find that the 4-factor model outperforms the 3-factor model in times of non-crises. In times of crises, the second Gaussian base signal does not lead to a better fit of the model. To the best of our knowledge, this is the first study regarding stochastic electricity spot price models in this new market environment. Hence, it serves as a solid base for future research.