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September 2013 Modeling and forecasting electricity spot prices: A functional data perspective
Dominik Liebl
Ann. Appl. Stat. 7(3): 1562-1592 (September 2013). DOI: 10.1214/13-AOAS652


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.


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Dominik Liebl. "Modeling and forecasting electricity spot prices: A functional data perspective." Ann. Appl. Stat. 7 (3) 1562 - 1592, September 2013.


Published: September 2013
First available in Project Euclid: 3 October 2013

zbMATH: 06237188
MathSciNet: MR3127959
Digital Object Identifier: 10.1214/13-AOAS652

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

Rights: Copyright © 2013 Institute of Mathematical Statistics


Vol.7 • No. 3 • September 2013
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