Price Prediction

Electric Price prediction models and results are available from numerous vendors.  Results are produced using varying degrees of detail of modeling and data.  Models can be very detailed or as simple as spreadsheets.

To produce electric price predictions, it is necessary to capture the critical components that drive price movements.  Electric prices are subject to supply/demand balances, number of participants, market power and elements of operational limitations.  With adequate surplus power and sufficient participants (footnote on FERC market power) power prices tend to follow the fundamental cost of production plus some contribution to fixed cost and profit. 

If it were not for limitations in the transmission system, prices would balance across large regions except for allowances in wheeling fees.  But transmission can reach limits causing the need for higher priced units to be utilized.  When these isolations occur and supply becomes more scarce, prices can move dramatically.  During these periods of supply isolation, prices are not predictable based on normal analytical methods.  The use of historical information can be helpful.  Depending on the specific region, other factors can be used to help provide insight into price movement.

A reasonable method to provide price prediction is to use a balance of the information from fundamental cost, probable reaction from participants, and historical trends.

Spreadsheets do not provide enough details to capture the operational details that drive fundamental costs.  Equally important is that spreadsheets cannot capture the critical impacts of transmission limitations. 

We offer a service that produce realistic and meaningful results by balancing the use of analytical models and historical results.  This balance must include:

         application of industry operations,

         technology awareness,

         knowledge of the geographic region,

         economic operational practices,

         operational limitations,

         and the proper balance of these factors.

 

 

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