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| Wholesale power markets have been evolving rapidly and many utilities have increased their exposure to hourly markets, strip markets, and various hedging tools that are used to control risk in such markets. Accurate long term forecasting of prices in such markets is not really feasible. However, understanding the process of price formation in extremely volatile wholesale power markets is essential to any player who is active in them. A wide range of models and supporting databases are now offered for market price forecasting with a very broad range of costs both for software and for consultation. Large investments in sophistication have often not produced proportionate yields in terms of their influence on utility policies and positions in the markets.
PSE has found that the most beneficial use of market price modeling is to develop an evergreen tool that can be used to explore the implications of alternate market forms and to evaluate the response of market prices to various assumed stimuli. Fundamental changes in utility planning practices occur when the focus moves away from a narrowly defined native load shape towards a market price duration curve. The underlying paradigm is that utilities can optimize their market position by selling whenever market prices are above their incremental costs and buying whenever prices are below these costs as long as risks are covered. Market price modeling is an essential ingredient to effective asset management in current utility environments. PSE works with our clients to assist them with market price modeling using the Interregional Electric Market Model (IREMM). We feel that this model provides sound understanding of markets and is consistent with the quality and quantity of data that is available for such work. At a minimum, this is an excellent way to identify what such models can really do before investing a lot of money in software and data with no clear downstream applications. |
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- Hourly market price forecasting for one and two part markets.
- Benchmarking of model estimates against historical data.
- Forecasting of key price parameters like the highest 50 hourly prices in the year and the average of all hourly prices above a specified dispatch price.
- Asset valuations based on market price forecasts.
- Valuations of call options using our HedgeHog model.
- Sensitivity analyses of price forecasts under various stress tests.
- Impact analyses of relieving transmission constraints.
- Competitive assessments based on hourly prices.
- Demand response evaluations against hourly prices.
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