Evaluation of Cost-at-Risk Related to the Procurement of Resources in the Ancillary Services Market. The Case of the Italian Electricity Market

In this work we are going to explore how to evaluate the cost risk related to the market-based ancillary services procurement by an electricity Transmission System Operator (TSO). Firstly the notion of Cost-at-Risk (CaR) is defined in the context of the dispatching market. Secondly, we are reviewing several classes of models useful for CaR quantification. They include semi-parametric and non-parametric models and are built to evaluate CaR conditionally to a set of possible drivers. Then, all of them are applied to a dataset provided by the Italian TSO and compared out-of-sample in terms of 1-day-ahead and 30-day-ahead CaR performances. Results suggest that the model with the globally best performance is the semi-parametric GAM-GARCH model