PCA forecast averaging - predicting day-ahead and intraday electricity prices

Katarzyna Maciejowska (katarzyna.maciejowska@pwr.wroc.pl), Bartosz Uniejewski and Tomasz Serafin

No WORMS/20/02, WORking papers in Management Science (WORMS) from Department of Operations Research and Business Intelligence, Wroclaw University of Science and Technology

Abstract: Recently, the development in combining point forecasts of electricity prices obtained with different length of calibration windows have provided an extremely efficient and simple tool for improving predictive accuracy. However, the proposed methods are strongly depended on expert knowledge and may not be directly transferred from one to another model or market. Hence, we consider a novel extension and propose to use Principal Component Analysis (PCA) to automate the procedure of averaging over a rich pool of predictions. We apply PCA to a panel of over 650 point forecasts obtained for different calibration windows. The robustness of the approach is evaluated with three different forecasting tasks, i.e., forecasting day-ahead prices, forecasting intraday ID3 prices one day in advance and finally very short term forecasting of ID3 prices (i.e., six hours before delivery). The empirical results are compared using the Mean Absolute Error measure and Giacomini and White test for conditional predictive ability (CPA). The results indicate that PCA averaging not only yields significantly more accurate forecasts than individual predictions but also outperforms other forecast averaging schemes.

Keywords: Electricity price forecasting; Day-ahead market; Intraday market; Forecast averaging; Principal component analysis; Decision-making (search for similar items in EconPapers)
JEL-codes: C22 C32 C51 C53 Q41 Q47 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2020-02-04
New Economics Papers: this item is included in nep-ene and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://worms.pwr.edu.pl/RePEc/ahh/wpaper/WORMS_20_02.pdf Original version, 2020 (application/pdf)

Related works:
Journal Article: PCA Forecast Averaging—Predicting Day-Ahead and Intraday Electricity Prices (2020)
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