A Common Shock Model for multidimensional electricity intraday price modelling with application to battery valuation

TL;DR

This paper introduces a multidimensional intraday electricity price model based on common shocks, capturing key features like the Samuelson effect and correlation decay, with applications to battery storage valuation.

Contribution

It presents a novel common shock Poisson model for multidimensional intraday electricity prices, capable of simulating all products simultaneously with only three parameters.

Findings

The model accurately reproduces the Samuelson effect.

It captures the decreasing correlation between prices of different maturities.

Application to storage valuation demonstrates practical utility.

Abstract

In this paper, we propose a multidimensional statistical model of intraday electricity prices at the scale of the trading session, which allows all products to be simulated simultaneously. This model, based on Poisson measures and inspired by the Common Shock Poisson Model, reproduces the Samuelson effect (intensity and volatility increases as time to maturity decreases). It also reproduces the price correlation structure, highlighted here in the data, which decreases as two maturities move apart. This model has only three parameters that can be estimated using a moment method that we propose here. We demonstrate the usefulness of the model on a case of storage valuation by dynamic programming over a trading session.