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This paper discusses the value of price forecasting in the electricity market during bidding or hedging against volatility. When bidding in a pool system, the market participants are requested to express their bids in terms of prices and quantities. Since the bids are accepted in order of increasing price until the total demand is met, a company that is able to forecast the pool price can adjust its own price/production schedule depending on hourly pool prices and its own production costs. This paper also discusses the challenges of price forecasting and describes some of the proposed methods for meeting these challenges.
Date of Publication: March-April 2006