Identifying the drivers of British electricity spot prices

Deregulation in the wholesale energy market leads to several new problems and one of them is the precision of price modelling models. In this reality where price setting process is impacted by more than merely equalling supply and demand, one should also take into account other factors like fuel prices, renewables, carbon costs, available outputs and so on. There are many suggested solutions for modelling and forecasting electricity prices but none of them are fully satisfactory and the industry is still seeking improved methods that can be relied on. Energy market constitutes a competitive environment and comprehension of electricity price factors is sought by all market players. In brief, my research focuses on gaining deep understanding of the price formation process in the wholesale energy market after deregulation, keeping in mind the competitive nature of the market participants. The goal is to establish what impacts the price curve and what is the impact of various policies on electricity market. Particular attention will be paid to the impact of increasing magnitude of renewable energy as well as impact of carbon prices on the price of electricity. The attempt is however to measure and present all variables that determine the wholesale electricity price. The second stage of the research will focus on profit maximization process for electricity retailers. This process requires advanced decision making tools which takes into account the inelastic demand of electricity which is bought from generators (who set the price of wholesale electricity) as well as the more and more elastic demand of electricity users who are gaining more power in controlling their usage via smart meters and other tech tools.