Forecasting Day-Ahead Electricity Prices: Utilizing Hourly Prices
AbstractThe 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 InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 13-068/III.
Date of creation: 17 May 2013
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Electricity market; Forecasting; Hourly prices; Dimension reduction; Shrinkage; Forecast combinations;
Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-ENE-2013-06-16 (Energy Economics)
- NEP-FOR-2013-06-16 (Forecasting)
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