The Power of Weather

27 Pages Posted: 13 Feb 2009

See all articles by Francesco Ravazzolo

Francesco Ravazzolo

Free University of Bolzano

Christian Huurman

Financial Engineering Associates

Chen Zhou

De Nederlandsche Bank; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

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Date Written: February, 12 2009


This paper examines the predictive power of weather for electricity prices in day-ahead markets in real time. We find that next-day weather forecasts improve the forecast accuracy of Scandinavian day-ahead electricity prices substantially in terms of point forecasts, suggesting that weather forecasts can price the weather premium. When weather forecasts are used to predict the entire density of electricity prices, results are however disappointing. Forecasting uncertainty in term of distributional shape plays a more important role than mean and volatility forecast precision.

Keywords: Electricity prices, GARCH models, weather forecasts, point and density forecasts

JEL Classification: C53, G15, Q40

Suggested Citation

Ravazzolo, Francesco and Huurman, Christian and Zhou, Chen, The Power of Weather (February, 12 2009). Available at SSRN: or

Francesco Ravazzolo (Contact Author)

Free University of Bolzano ( email )


Christian Huurman

Financial Engineering Associates ( email )

75 King William Street
London EC4N 7BE
United Kingdom

Chen Zhou

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA

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