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Forecasting Prices in Electricity Markets: Needs, Tools and Limitations

  • H. A. Gil
  • C. Gómez-Quiles
  • A. Gómez-Expósito
  • J. Riquelme Santos
Chapter
Part of the Energy Systems book series (ENERGY)

Abstract

Electricity is a fundamental good for society. The price at which it is sold as a commodity influences all levels of economic activity and determines the profits and benefits that generators and consumers reap from participating in the electricity markets. Forecasting the electricity prices at different time-frames, namely in the short-run (daily), medium-term (seasons) or long-term (years), is of foremost importance for all industry stakeholders for cash flow analysis, capital budgeting and financial procurement as well as regulatory rule-making and integrated resource planning, among others. On the other hand, the process of price formation in competitive electricity markets is unique in terms of the different factors that come into play in the settlement process. These factors, which may be endogenous or exogenous to the market, bring about uncertainty and volatility to the electricity prices. This uncertainty hinders the forecast user’s ability to estimate the prices with accuracy at the different time-frames. This chapter explores the different reasons why forecasting electricity prices is necessary in electricity markets, the most widely used methodologies for short-term electricity price forecasting and their fundamental common limitations. This analysis is carried out using actual electricity price datasets.

Keywords

Electricity markets forecasting heuristic and statistical models prices uncertainty volatility 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • H. A. Gil
    • 1
  • C. Gómez-Quiles
    • 1
  • A. Gómez-Expósito
    • 1
  • J. Riquelme Santos
    • 1
  1. 1.Department of Electrical EngineeringUniversity of SevilleSevilleSpain

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