In a competitive electricity market, ancillary services, such as operating reserves and regulation service, are also traded, in addition to electric energy. The focus of the present thesis is on analyzing and modelling the prices of operating reserves and regulation services in competitive electricity markets.
Characteristics of the prices of reserves and regulation services in the Ontario, New
York and ERCOT electricity markets are studied. More specifically, price variability, price jumps, long-range correlation, and non-linearity of the prices are analyzed using the available measures in the literature. The studied characteristics of operating reserve and regulation prices are also compared with those of energy prices. The findings show that the studied reserve and regulation prices feature extreme volatility, more frequent jumps and spikes, different peak price occurrence time, and lower predictability, compared to the energy prices.
To account for the distinguishing characteristics listed above, stochastic approaches for modelling the dynamics of operating reserve and regulation prices are investigated in the studied markets. Such descriptive stochastic models are necessary for risk management and derivative pricing of these commodities. Mean reverting jump-diffusion (MRJD) and Markov regime-switching (MRS) models with various specifications are analyzed. The performances of the two classes of models have been compared using various statistical measures.