Forecasting Weekly Electricity Prices at Nord Pool

Hipolit Torro

No 2007.88, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper analyses the forecasting power of weekly futures prices at Nord Pool. The forecasting power of futures prices is compared to an ARIMAX model of the spot price. The time series model contains lagged external variables such as: temperature, precipitation, reservoir levels and the basis (futures price less the spot price); and generally reflects the typical seasonal patterns in weekly spot prices. Results show that the time series model forecasts significantly beat futures prices when using the Diebold and Mariano (1995) test. Furthermore, the average forecasting error of futures prices reveals that they are significantly above the settlement spot price at the ‘delivery week’ and their size increases as the time to maturity increases. Those agents taking positions in weekly futures contracts at Nord Pool might find the estimated ARIMAX model useful for improving their expectation formation process for the underlying spot price.

Keywords: Electricity Markets; Power Derivatives and Forecasting Electricity Prices (search for similar items in EconPapers)
JEL-codes: G13 L94 (search for similar items in EconPapers)
Date: 2007-09
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 (4)

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Working Paper: Forecasting Weekly Electricity Prices at Nord Pool (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2007.88

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