The Nordic/Baltic Spot Electric Power System Price: Univariate Nonlinear Impulse-Response Analysis

Abstract

This paper revisits the conditional mean and volatility density characteristics of the System Price settled by the Nordic/Baltic Spot electric power market (1993-2017). The main purpose of this paper is an analysis of the nonlinear impulse-response features (shocks) in the non-storable commodity market. Initially, we extract all deterministic seasonality and non-stationary trend and scale features from the series. A strictly stationary model reports serial correlation for the mean and clustering, asymmetry and level effects for the volatility. For the mean, the impulse-response analysis reports linear and symmetric mean reversion for any price movements. For the volatility, small price movements report symmetric and decreasing volatility. In contrast, for larger absolute price movements, the volatility show a non-linear increase as well as fast-growing negative asymmetries. The impulse persistence is therefore relatively short. For the entrance of renewables in the energy market, the sub-period 2008-2017 reports major systematic changes for the mean, the volatility, the asymmetry and the persistence. In fact, the renewables era has made changes to all the fundamental features of the Nordic/Baltic electricity market.