Electricity Market Liquidity and Price Spikes: Evidence from Hungary

Authors

  • Mátyás Bajai
    Affiliation

    Department of Finance, Corvinus University of Budapest, Fővám tér 8., 1093 Budapest, Hungary

  • Attila A. Víg
    Affiliation

    Department of Finance, Corvinus University of Budapest, Fővám tér 8., 1093 Budapest, Hungary

  • Olivér Hortay
    Affiliation

    Department of Environmental Economics, Faculty of Economic and Social Sciences, Budapest University of Technology and Economics, Műegyetem rkp. 3, 1111 Budapest, Hungary
    Századvég Economic Research Institute, Energy Business Sector, Hidegkuti Nándor u. 8-10, 1037 Budapest, Hungary

https://doi.org/10.3311/PPso.16857

Abstract

This article examines how electricity market liquidity, renewable production and cross-border activity together in combination explain price spikes in the Hungarian Power Exchange day-ahead auctions. In the applied logit model, the dependent variable representing the price spike is binary, and the key explanatory variable is a modified bid-ask spread depicting liquidity. Weather-dependent renewable production and the difference between exports and imports appear as control variables in the model. The empirical analysis was based on data from 2017 and 2018. The results show that the control variables have no effect on the bid-ask spread and that the model explains 96 per cent of the spikes well, with an AUC-ROC of 0.75 and a Gini coefficient of 0.5. Based on the results, it may be worthwhile for traders to incorporate their data from sales and purchase curves into their forecasts, as this will improve their chances of successfully predicting extreme prices.

Keywords:

electricity sale and purchase curves, logit model, Hungarian Power Exchange, electricity market liquidity

Published Online

2022-01-03

How to Cite

Bajai, M., Víg, A. A., Hortay, O. (2022) “Electricity Market Liquidity and Price Spikes: Evidence from Hungary”, Periodica Polytechnica Social and Management Sciences, 30(1), pp. 49–56. https://doi.org/10.3311/PPso.16857

Issue

Section

Articles