Modelling the impact of wind power production on electricity prices by regime-switching lévy semistationary processes

Abstract

This paper studies the impact of wind power production on electricity prices in the European energy market. We propose a new modelling framework based on so-called regime-switching Lévy semistationary processes to account for forward-looking information consisting of predicted wind power generation. We show that our new regime-switching model, where the regime switch depends on the so-called wind penetration index, can describe recent electricity price data well.