Volatility of power markets

Volatility features of the Nordic day ahead power spot market for a 12-year period up till May 2004 are studied. The daily logarithmic volatility was measured for this period to be about 16%. This level is well above what is observed for most other well-studied financial markets. Volatility clustering, log-normal distribution, and long-range correlations are found-to be striking features of the volatility of power markets. In addition, a cyclic behavior of the time-dependent volatility can be observed for the Nordic power market. Furthermore, the volatility shows a dependence on the price level, and this is pronounced mostly when the spot price is low. The correlation in volatility is consistent with an inverse power-law decay, tau(-nu), superposed on an oscillating term. The numerical value of the exponent v is similar to what has been reported previously for stock markets. (c) 2005 Elsevier B.V. All rights reserved.