Event-Based Evaluation of Electricity Price Ensemble Forecasts

Arne Vogler and Florian Ziel
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Arne Vogler: House of Energy Markets and Finance, University of Duisburg-Essen, 45141 Essen, Germany
Florian Ziel: House of Energy Markets and Finance, University of Duisburg-Essen, 45141 Essen, Germany

Forecasting, 2021, vol. 4, issue 1, 1-21

Abstract: The present paper considers the problem of choosing among a collection of competing electricity price forecasting models to address a stochastic decision-making problem. We propose an event-based evaluation framework applicable to any optimization problem, where uncertainty is captured through ensembles. The task of forecast evaluation is simplified from assessing a multivariate distribution over prices to assessing a univariate distribution over a binary outcome directly linked to the underlying decision-making problem. The applicability of our framework is demonstrated for two exemplary profit-maximization problems of a risk-neutral energy trader, (i) the optimal operation of a pumped-hydro storage plant and (ii) the optimal trading of subsidized renewable energy in Germany. We compare and contrast the approach with the full probabilistic and profit–loss-based evaluation frameworks. It is concluded that the event-based evaluation framework more reliably identifies economically equivalent forecasting models, and in addition, the results suggest that an event-based evaluation specifically tailored to the rare event is crucial for decision-making problems linked to rare events.

Keywords: electricity price forecasting; probabilistic forecasting; statistical models (search for similar items in EconPapers)
JEL-codes: A1 B4 C0 C1 C2 C3 C4 C5 C8 M0 Q2 Q3 Q4 (search for similar items in EconPapers)
Date: 2021
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