A time series analysis of day-ahead prices on the Italian power exchange

In this paper, time series models are estimated on daily average day-ahead prices quoted on the Italian power exchange (IPEX) between April 2004 and December 2008. We show that the EGARCH model outperforms ARMAX models in terms of forecasting power, and that IPEX prices are characterized by a leverage effect. We then add dummies to the ARMAX and EGARCH specifications in order to control for the impact of contracts for differences (CfDs), white certificates, the demandside liberalization and the gas crises upon the IPEX price. We find that the policy measures have only affected the volatility of IPEX prices: reducing it (CfDs) or increasing it (white certificates, demand liberalization).