access icon free Multifractal based return interval approach for short-term electricity price volatility risk estimation

With the ever-increasing penetration level of renewable energy generation in a power system, more uncertainties are introduced and hence risk management in the electricity market associated is becoming a more difficult issue for a market participant in the context of optimising his/her portfolio. Among a lot of risk factors in the competitive electricity market environment, the highly volatile electricity price contributes most to the financial risk of the power portfolio, especially in a short-term risk management scenario such as the spot market and real-time balancing market. Some research work has shown that the fluctuations of electricity prices exhibit multifractal characteristics, but less work has been done on the price volatility risk evaluation based on the multifractal theory. This study hence examines the feasibility of applying the multifractal theory to analyse the electricity price fluctuation, and applies the multifractal theory for evaluating the financial risk caused by electricity price volatility. A modified return interval approach considering the parameters of multifractal characteristics is employed to estimate the value-at-risk (VaR) of the electricity price. The fluctuant electricity price data series in the Pennsylvania-New Jersey-Maryland energy market are employed to demonstrate the effectiveness of the proposed VaR estimation method for short-term electricity price volatility risk evaluation.

Inspec keywords: power markets; fractals; risk management; pricing; financial management

Other keywords: volatile electricity price; short-term electricity price volatility risk estimation; renewable energy generation; financial risk; risk management; price volatility risk evaluation; multifractal based return interval approach; fluctuant electricity price data series; Pennsylvania-New Jersey-Maryland energy market; real-time balancing market; short-term risk management scenario; multifractal characteristics; spot market; electricity prices fluctuations; modified return interval approach; power portfolio; multifractal theory; competitive electricity market environment; electricity price volatility; value-at-risk; VaR estimation method

Subjects: Power system management, operation and economics

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