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The Role of Residual Demand in Electricity Price Analysis and Forecasting: Case of Czech Electricity Market

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  • Jan Smolen

    (Department of Economy and Finance, Faculty of Management, Comenuis University in Bratislava, Odbojarov 10, 820 05 Bratislava, Slovakia)

  • Branislav Dudic

    (Department of Economy and Finance, Faculty of Management, Comenuis University in Bratislava, Odbojarov 10, 820 05 Bratislava, Slovakia.)

Abstract

Most of scientific papers dealing with power price predictions base their work on various statistical time series models. In this paper we propose a new, purely fundamental, approach to the issues of electricity price analysis and forecasting. While precise replication of real power market processes is very complicated, we show that even relatively simple fundamental model is able to explain large part of price movements on the electricity markets. Analysis presented is based predominantly on the Merit order theory and introduces the concept of residual demand as a crucial variable for explaining hourly electricity price movements. While the analysis shown in this paper is applied to the Czech electricity day-ahead market, it can be well replicated also for the other relevant European power market areas. Tests of fundamental approaches towards power price forecasting have shown very promising results and we believe they deserve more attention from the electricity market researchers.

Suggested Citation

  • Jan Smolen & Branislav Dudic, 2017. "The Role of Residual Demand in Electricity Price Analysis and Forecasting: Case of Czech Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 7(5), pages 152-158.
    • Handle: RePEc:eco:journ2:2017-05-16
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    References listed on IDEAS

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    1. Crespo Cuaresma, Jesús & Hlouskova, Jaroslava & Kossmeier, Stephan & Obersteiner, Michael, 2004. "Forecasting electricity spot-prices using linear univariate time-series models," Applied Energy, Elsevier, vol. 77(1), pages 87-106, January.
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    Cited by:

    1. Rentková, Katarína, 2018. "Regional Innovation Strategies Applied in Slovak Republic," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2018), Split, Croatia, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Split, Croatia, 6-8 September 2018, pages 320-326, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    2. Maria Juliana Suarrez Foréro & Frédéric Lantz & Pierre Nicolas & Patrice Geoffron, 2022. "The Impact of Electric Vehicle Fleets on the European Electricity Markets: Evidences from the German Passenger Car Fleet and Power Generation Sector," Working Papers hal-03898558, HAL.
    3. Jorge Barrientos Marin & Elkin Tabares Orozco & Esteban Velilla, 2018. "Forecasting electricity price in Colombia: A comparison between Neural Network, ARMA process and Hybrid Models," International Journal of Energy Economics and Policy, Econjournals, vol. 8(3), pages 97-106.
    4. Maria Juliana Suarrez Foréro & Frédéric Lantz & Pierre Nicolas & Pierre Geoffron, 2022. "The impact of Electric Vehicle fleets on the European Electricity Markets : Evidences from the German Passenger Car Fleet and Power Generation Sector," Working Papers hal-03609361, HAL.

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    More about this item

    Keywords

    Electricity market; Electricity prices forecasting; Merit order theory;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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