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Forecasting Day-Ahead Electricity Prices: Utilizing Hourly Prices

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Author Info

  • Eran Raviv

    (Erasmus University Rotterdam)

  • Kees E. Bouwman

    (Erasmus University Rotterdam)

  • Dick van Dijk

    (Erasmus University Rotterdam)

Abstract

The daily average price of electricity represents the price of electricity to be delivered over the full next day and serves as a key reference price in the electricity market. It is an aggregate that equals the average of hourly prices for delivery during each of the 24 individual hours. This paper demonstrates that the disaggregated hourly prices contain useful predictive information for the daily average price. Multivariate models for the full panel of hourly prices significantly outperform univariate models of the daily average price, with reductions in Root Mean Squared Error of up to 16%. Substantial care is required in order to achieve these forecast improvements. Rich multivariate models are needed to exploit the relations between different hourly prices, but the risk of overfitting must be mitigated by using dimension reduction techniques, shrinkage and forecast combinations.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 13-068/III.

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Date of creation: 17 May 2013
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Handle: RePEc:dgr:uvatin:20130068

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Web page: http://www.tinbergen.nl

Related research

Keywords: Electricity market; Forecasting; Hourly prices; Dimension reduction; Shrinkage; Forecast combinations;

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Cited by:
  1. Katarzyna Maciejowska & Jakub Nowotarski & Rafal Weron, 2014. "Probabilistic forecasting of electricity spot prices using Factor Quantile Regression Averaging," HSC Research Reports, Hugo Steinhaus Center, Wroclaw University of Technology HSC/14/09, Hugo Steinhaus Center, Wroclaw University of Technology.

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