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Forecasting Prices in Electricity Markets: Needs, Tools and Limitations

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Handbook of Networks in Power Systems I

Part of the book series: Energy Systems ((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.

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Author information

Authors and Affiliations

  1. Department of Electrical Engineering, University of Seville, Seville, Spain

    H. A. Gil, C. Gómez-Quiles, A. Gómez-Expósito & J. Riquelme Santos

Authors
  1. H. A. Gil
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  2. C. Gómez-Quiles
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  3. A. Gómez-Expósito
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  4. J. Riquelme Santos
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Editor information

Editors and Affiliations

  1. Industrial and Systems Engineering, University of Florida, Weil Hall 303, Gainesville, 32611, Florida, USA

    Alexey Sorokin

  2. Division of Economics and Business, Colorado School of Mines, 15th Street 816, Golden, 80401, Colorado, USA

    Steffen Rebennack

  3. Department of Industrial & Systems Engin, University of Florida, Weil Hall 401, Gainesville, 32611-6595, Florida, USA

    Panos M. Pardalos

  4. Research & Development, EnerCoRD - Energy Consulting,, Plastira Street 4, Athens, 171 21, Greece

    Niko A. Iliadis

  5. Rio Praia de Botafogo, Centro Empresarial, -A-Botafogo 2281701, Rio de Janeiro, 22250-040, Rio de Janeiro, Brazil

    Mario V. F. Pereira

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© 2012 Springer-Verlag Berlin Heidelberg

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Gil, H.A., Gómez-Quiles, C., Gómez-Expósito, A., Santos, J.R. (2012). Forecasting Prices in Electricity Markets: Needs, Tools and Limitations. In: Sorokin, A., Rebennack, S., Pardalos, P., Iliadis, N., Pereira, M. (eds) Handbook of Networks in Power Systems I. Energy Systems. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-23193-3_5

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