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Liebl, Dominik

Modeling and forecasting electricity spot prices: a functional data perspective. (English) Zbl 1454.62267

Ann. Appl. Stat. 7, No. 3, 1562-1592 (2013).
Summary: 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.

Cited in 28 Documents

MSC:

62M10 Time series, auto-correlation, regression, etc. in statistics (GARCH)
62H25 Factor analysis and principal components; correspondence analysis
62R10 Functional data analysis
62P20 Applications of statistics to economics

Keywords:

functional factor model; functional data analysis; time series analysis; fundamental market model; merit order curve; European Energy Exchange (EEX)

Software:

fda.usc; fda (R); fds
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Full Text: DOI arXiv Euclid

References:

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