A nonlinear factor model based on fundamental weather variables, in addition to market-related variables, is proposed for modeling the price of electricity. The full conditional distribution of electricity prices using quantile regressions is modeled and the effect of weather factors on upside and downside risks in the electricity market is analyzed. Data from the Nord Pool is used to fit the proposed model to a wide and highly integrated market, as well as several individual national markets, and to search for possible asymmetries in both individual and aggregated levels of the price dynamics. By doing so, important differences across countries and quantiles in the price responses to weather variations are documented, but mostly extensive evidence in favor of the quantile-factor model based on weather variables is provided.
