A trading-based evaluation of density forecasts in a real-time electricity market

Bunn, D W, Gianfreda, A and Kermer, S (2018) A trading-based evaluation of density forecasts in a real-time electricity market. Energies, 11 (10). p. 2658. ISSN 1996-1073 OPEN ACCESS


This paper applies a multi-factor, stochastic latent moment model to predicting the imbalance volumes in the Austrian zone of the German/Austrian electricity market. This provides a density forecast whose shape is determined by the flexible skew-t distribution, the first three moments of which are estimated as linear functions of lagged imbalance and forecast errors for load, wind and solar production. The evaluation of this density predictor is compared to an expected value obtained from OLS regression model, using the same regressors, through an out-of-sample backtest of a flexible generator seeking to optimize its imbalance positions on the intraday market. This research contributes to forecasting methodology and imbalance prediction, and most significantly it provides a case study in the evaluation of density forecasts through decision-making performance. The main finding is that the use of the density forecasts substantially increased trading profitability and reduced risk compared to the more conventional use of mean value regressions.

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Item Type: Article
Subject Areas: Management Science and Operations
Additional Information:

Bunn, D.W.; Gianfreda, A.; Kermer, S. A Trading-Based Evaluation of Density Forecasts in a Real-Time Electricity Market. Energies 2018, 11, 2658.

Date Deposited: 12 Oct 2018 10:26
Date of first compliant deposit: 08 Oct 2018
Subjects: Electricity supply industry
Last Modified: 10 Jan 2024 01:47
URI: https://lbsresearch.london.edu/id/eprint/1018

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