Short-Term Electricity Price Forecasting with Recurrent Regimes and Structural Breaks

Rodrigo A. de Marcos, Derek W. Bunn, Antonio Bello and Javier Reneses
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Rodrigo A. de Marcos: Institute for Research in Technology, Technical School of Engineering (ICAI), Universidad Pontificia Comillas, 28015 Madrid, Spain
Derek W. Bunn: Management Science and Operations, London Business School, London NW1 4SA, UK
Antonio Bello: Institute for Research in Technology, Technical School of Engineering (ICAI), Universidad Pontificia Comillas, 28015 Madrid, Spain
Javier Reneses: Institute for Research in Technology, Technical School of Engineering (ICAI), Universidad Pontificia Comillas, 28015 Madrid, Spain

Energies, 2020, vol. 13, issue 20, 1-14

Abstract: This paper develops a new approach to short-term electricity forecasting by focusing upon the dynamic specification of an appropriate calibration dataset prior to model specification. It challenges the conventional forecasting principles which argue that adaptive methods should place most emphasis upon recent data and that regime-switching should likewise model transitions from the latest regime. The approach in this paper recognises that the most relevant dataset in the episodic, recurrent nature of electricity dynamics may not be the most recent. This methodology provides a dynamic calibration dataset approach that is based on cluster analysis applied to fundamental market regime indicators, as well as structural time series breakpoint analyses. Forecasting is based upon applying a hybrid fundamental optimisation model with a neural network to the appropriate calibration data. The results outperform other benchmark models in backtesting on data from the Iberian electricity market of 2017, which presents a considerable number of market structural breaks and evolving market price drivers.

Keywords: day-ahead electricity markets; electricity price forecasting; fundamental-econometric models; market structural breaks (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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