Long-term memory in electricity prices: Czech market evidence

Abstract

We analyze long-term memory properties of hourly prices of electricity in the Czech Republic between 2009 and 2012. As the dynamics of the electricity prices is dominated by cycles -- mainly intraday and daily -- we opt for the detrended fluctuation analysis, which is well suited for such specific series. We find that the electricity prices are non-stationary but strongly mean-reverting which distinguishes them from other financial assets which are usually characterized as unit root series. Such description is attributed to specific features of electricity prices, mainly to non-storability. Additionally, we argue that the rapid mean-reversion is due to the principles of electricity spot prices. These properties are shown to be stable across all studied years.