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Automated variable selection and shrinkage for day-ahead electricity price forecasting

Author

Listed:
  • Bartosz Uniejewski
  • Jakub Nowotarski
  • Rafal Weron

Abstract

In day-ahead electricity price forecasting (EPF) variable selection is a crucial issue. Conducting an extensive empirical study involving state-of-the-art parsimonious expert models as benchmarks, datasets from three major power markets and five classes of automated selection and shrinkage procedures (single-step elimination, stepwise regression, ridge regression, lasso and elastic nets) we show that using the latter two classes can bring significant accuracy gains compared to commonly used EPF models. In particular, one of the elastic nets - a class that has not been considered in EPF before - stands out as the best performing model overall.

Suggested Citation

  • Bartosz Uniejewski & Jakub Nowotarski & Rafal Weron, 2016. "Automated variable selection and shrinkage for day-ahead electricity price forecasting," HSC Research Reports HSC/16/06, Hugo Steinhaus Center, Wroclaw University of Technology.
    • Handle: RePEc:wuu:wpaper:hsc1606
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    More about this item

    Keywords

    Electricity price forecasting; Day-ahead market; Autoregression; Variable selection; Stepwise regression; Ridge regression; Lasso; Elastic net;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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