A method for calibration of a fundamental model of electricity price

In the liberalized electricity markets, the utilities need the right model to forecast the stochastic behavior of electricity market prices. The models range from quantitative models, cost-based models, economic equilibrium models, agent-based models, experimental models, and fundamental models determining the stochastic properties of electricity prices. The focus of the investigation was to calibrate a fundamental model using actual data on electricity price and load from the European Energy Exchange EEX. Stationarity of historical data was ascertained using the Dickey-Fuller test. The calibration entailed the use of principal component analysis and a linear regression model in conjunction with Kalman filter and maximum likelihood method. Using the calibrated model, the electricity price for year 2011 and 2012 was simulated. The results of simulations were compared with the results obtained with the method of moving average and advantages and disadvantages of the fundamental method were considered.