An Empirical Comparison of Alternate Schemes for Combining Electricity Spot Price Forecasts

28 Pages Posted: 22 Aug 2013  

Jakub Nowotarski

Wroclaw University of Technology - Institute of Organization and Management

Eran Raviv

APG Asset Management

Stefan Trück

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Rafal Weron

Wroclaw University of Technology - Institute of Organization and Management

Date Written: August 21, 2013

Abstract

In this paper we investigate the use of forecast averaging for electricity spot prices. While there is an increasing body of literature on the use of forecast combinations, there is only a small number of applications of these techniques in the area of electricity markets. In this comprehensive empirical study we apply seven averaging and one selection scheme and perform a backtesting analysis on day-ahead electricity prices in three major European and US markets. Our findings support the additional benefit of combining forecasts for deriving more accurate predictions, however, the performance is not uniform across the considered markets. Interestingly, equally weighted pooling of forecasts emerges as a viable robust alternative compared with other schemes that rely on estimated combination weights. Overall, we provide empirical evidence that also for the extremely volatile electricity markets, it is beneficial to combine forecasts from various models for the prediction of day-ahead electricity prices. In addition, we empirically demonstrate that not all forecast combination schemes are recommended.

Keywords: Electricity price forecasting, Forecasts combination, ARX model, Day-ahead market

Suggested Citation

Nowotarski, Jakub and Raviv, Eran and Trück, Stefan and Weron, Rafal, An Empirical Comparison of Alternate Schemes for Combining Electricity Spot Price Forecasts (August 21, 2013). Available at SSRN: https://ssrn.com/abstract=2313553 or http://dx.doi.org/10.2139/ssrn.2313553

Jakub Nowotarski

Wroclaw University of Technology - Institute of Organization and Management ( email )

Wyspianskiego 27
Wroclaw, 50-370
Poland

HOME PAGE: http://www.ioz.pwr.wroc.pl/

Eran Raviv (Contact Author)

APG Asset Management ( email )

Gustav Mahlerplein 3
Amsterdam, 1082 MS
Netherlands

HOME PAGE: http://eranraviv.com/about/

Stefan Trueck

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies ( email )

North Ryde
Sydney, New South Wales 2109
Australia
61298508483 (Phone)
61298508483 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Rafal Weron

Wroclaw University of Technology - Institute of Organization and Management ( email )

Wyspianskiego 27
Wroclaw, 50-370
Poland

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