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Postprocessing of point predictions for probabilistic forecasting of electricity prices: Diversity matters

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  • Arkadiusz Lipiecki
  • Bartosz Uniejewski
  • Rafa{l} Weron

Abstract

Operational decisions relying on predictive distributions of electricity prices can result in significantly higher profits compared to those based solely on point forecasts. However, the majority of models developed in both academic and industrial settings provide only point predictions. To address this, we examine three postprocessing methods for converting point forecasts into probabilistic ones: Quantile Regression Averaging, Conformal Prediction, and the recently introduced Isotonic Distributional Regression. We find that while IDR demonstrates the most varied performance, combining its predictive distributions with those of the other two methods results in an improvement of ca. 7.5% compared to a benchmark model with normally distributed errors, over a 4.5-year test period in the German power market spanning the COVID pandemic and the war in Ukraine. Remarkably, the performance of this combination is at par with state-of-the-art Distributional Deep Neural Networks.

Suggested Citation

  • Arkadiusz Lipiecki & Bartosz Uniejewski & Rafa{l} Weron, 2024. "Postprocessing of point predictions for probabilistic forecasting of electricity prices: Diversity matters," Papers 2404.02270, arXiv.org.
    • Handle: RePEc:arx:papers:2404.02270
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    References listed on IDEAS

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    3. Kath, Christopher & Ziel, Florian, 2021. "Conformal prediction interval estimation and applications to day-ahead and intraday power markets," International Journal of Forecasting, Elsevier, vol. 37(2), pages 777-799.
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    6. Lago, Jesus & Marcjasz, Grzegorz & De Schutter, Bart & Weron, Rafał, 2021. "Forecasting day-ahead electricity prices: A review of state-of-the-art algorithms, best practices and an open-access benchmark," Applied Energy, Elsevier, vol. 293(C).
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