Delivering electricity market insights in Northern Italy

This paper assesses the robustness and predictive power of a model comprising a complete set of variables affecting the electricity prices in Northern Italy. The Italian market is based on an implicit auction mechanism via six zonal prices, whose weighted average derives the System Marginal Price, or Prezzo Unico Nazionale (PUN). Given the focus on Northern Italy, as the country’s industrial core and main demand center, this work considers an exhaustive set of exogenous variables affecting a specific market zone, i.e. the North Zone. The import from bordering countries and market zones, the impact of non-programmable renewables, the load factor, the weather data and the prices of underlying commodities have been included. The econometric modelling of an ARMAX process for North Zone prices results in an under performance compared to a standard ARMA, to be fine-tuned, with potential implications regarding the reliance on timely adjustments on market information at trading floor level.