Electricity Price Forecasting: The Dawn of Machine Learning

Electricity Price Forecasting (EPF) IS A branch of forecasting at the interface of electrical engineering, statistics, computer science, and finance that focuses on predicting prices in wholesale electricity markets for a whole spectrum of horizons. These range from a few minutes (real-time/intraday auctions and continuous trading); through days (day-ahead [DA] auctions); to weeks, months, or even years (exchange and over-the-counter traded futures and forward contracts). DA markets are the workhorse of power trading, particularly in Europe, and a commonly used proxy for “the electricity price.” The vast majority—up to 90%—of the EPF literature has focused on predicting DA prices. These are typically determined around noon during 24 uniform-price auctions, one for each hour of the next day. This has direct implications for the way EPF models are built.