The Annals of Applied Statistics

Modeling and forecasting electricity spot prices: A functional data perspective

Dominik Liebl

Full-text: Open access

Abstract

Classical time series models have serious difficulties in modeling and forecasting the enormous fluctuations of electricity spot prices. Markov regime switch models belong to the most often used models in the electricity literature. These models try to capture the fluctuations of electricity spot prices by using different regimes, each with its own mean and covariance structure. Usually one regime is dedicated to moderate prices and another is dedicated to high prices. However, these models show poor performance and there is no theoretical justification for this kind of classification. The merit order model, the most important micro-economic pricing model for electricity spot prices, however, suggests a continuum of mean levels with a functional dependence on electricity demand.

We propose a new statistical perspective on modeling and forecasting electricity spot prices that accounts for the merit order model. In a first step, the functional relation between electricity spot prices and electricity demand is modeled by daily price-demand functions. In a second step, we parameterize the series of daily price-demand functions using a functional factor model. The power of this new perspective is demonstrated by a forecast study that compares our functional factor model with two established classical time series models as well as two alternative functional data models.

Article information

Source
Ann. Appl. Stat., Volume 7, Number 3 (2013), 1562-1592.

Dates
First available in Project Euclid: 3 October 2013

Permanent link to this document
https://projecteuclid.org/euclid.aoas/1380804807

Digital Object Identifier
doi:10.1214/13-AOAS652

Mathematical Reviews number (MathSciNet)
MR3127959

Zentralblatt MATH identifier
06237188

Keywords
Functional factor model functional data analysis time series analysis fundamental market model merit order curve European Energy Exchange EEX

Citation

Liebl, Dominik. Modeling and forecasting electricity spot prices: A functional data perspective. Ann. Appl. Stat. 7 (2013), no. 3, 1562--1592. doi:10.1214/13-AOAS652. https://projecteuclid.org/euclid.aoas/1380804807


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Supplemental materials

  • Supplementary material: R-codes and data set. In this supplement we provide a zip file containing the R-Codes and the data set used to model and forecast electricity spot prices by the functional factor model as described in this paper.