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Fine structure of the price-demand relationship in the electricity market: multi-scale correlation analysis

Afanasyev, Dmitriy and Fedorova, Elena and Popov, Viktor (2014): Fine structure of the price-demand relationship in the electricity market: multi-scale correlation analysis.

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The price-demand relationship in the electricity market is a complicated phenomenon. In order to thoroughly investigate the peculiarities of this relationship, a multi-scale correlation analysis of electricity price and demand is carried out in this research. Using a modified method of socalled time-dependent intrinsic correlation (TDIC) (Chen et al., 2010), based on the complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN) (Torres et al., 2011), and bootstrapping, we investigate the problems of dynamic interconnection between electricity demand and prices over different time scales (i.e. its fine structure). We formulate and test three hypotheses on the type and strength of correlations between them in the short-, medium- and long-runs. In this research we analyze the data from two largest price zones of Russian wholesale electricity market: Europe-Ural and Siberia. These two zones differ from each other by the structures of electricity generation and consumption. It is shown that these two price zones significantly differ in internal price-demand correlation structure over the comparable time scales, and not each of the theoretically formulated hypotheses is true for each of the price zones. This allows us to conclude that the answer to the question whether it is necessary to take into account the influence of demand-side on electricity spot prices over different time scales, is significantly dependent on the structure of electricity generation and consumption on the corresponding market.

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