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The power of weather. Some empirical evidence on predicting day-ahead power prices through weather forecasts

Author

Listed:
  • Christian Huurman

    (Financial Engeneering Associates)

  • Francesco Ravazzolo

    (Norges Bank (Central Bank of Norway))

  • Chen Zhou

    (Erasmus University, Amsterdam)

Abstract

This paper examines the predictive power of weather for electricity prices in day-ahead markets in real time. We find that next-day weather forecasts improve the forecast accuracy of day-ahead electricity prices substantially, suggesting that weather forecasts can price the weather premium. Moreover, we find that the predictive power of weather forecasts for electricity prices can be further exploited by allowing for non-linear effects of the weather forecasts.

Suggested Citation

  • Christian Huurman & Francesco Ravazzolo & Chen Zhou, 2008. "The power of weather. Some empirical evidence on predicting day-ahead power prices through weather forecasts," Working Paper 2008/08, Norges Bank.
    • Handle: RePEc:bno:worpap:2008_08
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    File URL: https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2008/WP-20088/
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    References listed on IDEAS

    as
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    Cited by:

    1. Huisman, Ronald, 2008. "The influence of temperature on spike probability in day-ahead power prices," Energy Economics, Elsevier, vol. 30(5), pages 2697-2704, September.

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    More about this item

    Keywords

    Electricity prices; Forecasting; GARCH models; Weather forecasts.;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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