This paper analyzes the special features of electricity spot prices derived from the physics of this commodity and from the economics of supply and demand in a market pool. Besides mean reversion, a property they share with other commodities, power prices exhibit the unique feature of spikes in trajectories. We introduce a class of discontinuous processes exhibiting a “jump-reversion” component to properly represent these sharp upward moves shortly followed by drops of similar magnitude. Our approach allows to capture -for the first time to our knowledge- both the trajectorial and the satistical properties of electricity pool prices. The quality of the fitting is illustrated on a database of major US power markets.
GEMAN, H. et RONCORONI, A. (2006). Understanding the Fine Structure of Electricity Prices. Journal of Business, pp. 1225-1261.