Forecasting performance of time series models on electricity spot markets

Abstract

Purpose

Study conditions of empirical publications on time series modeling and forecasting of electricity prices vary widely, making it difficult to generalize results. The key purpose of the present study is to offer a comparison of different model types and modeling conditions regarding their forecasting performance.

Design/methodology/approach

The authors analyze the forecasting performance of AR (autoregressive), MA (moving average), ARMA (autoregressive moving average) and GARCH (generalized autoregressive moving average) models with and without the explanatory variables, that is, power consumption and power generation from wind and solar. Additionally, the authors vary the detailed model specifications (choice of lag-terms) and transformations (using differenced time series or log-prices) of data and, thereby, obtain individual results from various perspectives. All analyses are conducted on rolling calibrating and testing time horizons between 2010 and 2014 on the German/Austrian electricity spot market.

Findings

The main result is that the best forecasts are generated by ARMAX models after spike preprocessing and differencing the data.

Originality/value

The present study extends the existing literature on electricity price forecasting by conducting a comprehensive analysis of the forecasting performance of different time series models under varying market conditions. The results of this study, in general, support the decision-making of electricity spot price modelers or forecasting tools regarding the choice of data transformation, segmentation and the specific model selection.

Citation

Gürtler, M. and Paulsen, T. (2018), "Forecasting performance of time series models on electricity spot markets", International Journal of Energy Sector Management, Vol. 12 No. 4, pp. 617-640. https://doi.org/10.1108/IJESM-12-2017-0006