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Forecasting price spikes in day-ahead electricity markets: techniques, challenges, and the road ahead

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Due to the increase in renewable energy production and global socioeconomic turmoil, the volatility in electricity prices has considerably increased in recent years, leading to extreme positive and negative price spikes in many electricity markets. Forecasting (the risk of) these prices accurately in advance can enable risk-informed decision-making by both consumers and generators, as well as by the grid operators. In this work, focusing on day-ahead markets, we review recent developments in how price spikes are defined, as well as which explanatory factors and methodologies have been used to forecast them. The paper identifies seven categories of influencing factors, which come with over 30 sub-classifications that can cause price spikes. In terms of methodologies, probabilistic models are being increasingly utilized to capture uncertainty in the price forecast. The review uncovers a wide range in all of these choices as well as others, which makes it difficult to compare methods and select best practices for predicting price spikes.

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  • Sheybanivaziri, Samaneh & Le Dréau, Jérôme & Kazmi, Hussain, 2024. "Forecasting price spikes in day-ahead electricity markets: techniques, challenges, and the road ahead," Discussion Papers 2024/1, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2024_001
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    1. Maticka, Martin J. & Mahmoud, Thair S., 2025. "Bayesian Belief Networks: Redefining wholesale electricity price modelling in high penetration non-firm renewable generation power systems," Renewable Energy, Elsevier, vol. 239(C).

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    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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