Backing out Expectations from Hydropower Release Time Series

Abstract

Our goal is to study how price expectations are formed in an electricity market. In the context of a single hydropower producer in the Nordic market, we expect the forward curve to have a strong influence. The alternative we allow for is a seasonal autoregressive joint inflow and spot price model that takes dry- and wet year dynamics into account. Using observed time series of generation, reservoir trajectories and technical plant data, and a structural model of optimal releases, our initial findings indicate that forward prices have influence on price expectations. An important byproduct of the proposed procedure is estimates of marginal water values.