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Reducing complexity in multivariate electricity price forecasting

Reducing complexity in multivariate electricity price forecasting In short-term forecasting of day-ahead electricity prices, incorporating intraday dependencies is vital for accurate predictions. However, it quickly leads to dimensionality problems, i.e. ill-defined models with too many parameters, which require an adequate remedy. This study addresses this issue.Design/methodology/approachIn an application for the German/Austrian market, this study derives variable importance scores from a random forest algorithm, feeds the identified variables into a support vector machine and compares the resulting forecasting technique to other approaches (such as dynamic factor models, penalized regressions or Bayesian shrinkage) that are commonly used to resolve dimensionality problems.FindingsThis study develops full importance profiles stating which hours of which past days have the highest predictive power for specific hours in the future. Using the profile information in the forecasting setup leads to very promising results compared to the alternatives. Furthermore, the importance profiles provide a possible explanation why some forecasting methods are more accurate for certain hours of the day than others. They also help to explain why simple forecast combination schemes tend to outperform the full battery of models considered in the comprehensive comparative study.Originality/valueWith the information contained in the variable importance scores and the results of the extensive model comparison, this study essentially provides guidelines for variable and model selection in future electricity market research. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Energy Sector Management Emerald Publishing

Reducing complexity in multivariate electricity price forecasting

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References (81)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1750-6220
eISSN
1750-6220
DOI
10.1108/ijesm-12-2020-0017
Publisher site
See Article on Publisher Site

Abstract

In short-term forecasting of day-ahead electricity prices, incorporating intraday dependencies is vital for accurate predictions. However, it quickly leads to dimensionality problems, i.e. ill-defined models with too many parameters, which require an adequate remedy. This study addresses this issue.Design/methodology/approachIn an application for the German/Austrian market, this study derives variable importance scores from a random forest algorithm, feeds the identified variables into a support vector machine and compares the resulting forecasting technique to other approaches (such as dynamic factor models, penalized regressions or Bayesian shrinkage) that are commonly used to resolve dimensionality problems.FindingsThis study develops full importance profiles stating which hours of which past days have the highest predictive power for specific hours in the future. Using the profile information in the forecasting setup leads to very promising results compared to the alternatives. Furthermore, the importance profiles provide a possible explanation why some forecasting methods are more accurate for certain hours of the day than others. They also help to explain why simple forecast combination schemes tend to outperform the full battery of models considered in the comprehensive comparative study.Originality/valueWith the information contained in the variable importance scores and the results of the extensive model comparison, this study essentially provides guidelines for variable and model selection in future electricity market research.

Journal

International Journal of Energy Sector Management – Emerald Publishing

Published: Jan 3, 2022

Keywords: Feature selection; Support vector machine; Regularization; Feature extraction; Random forest; Electricity markets; Forecast combination; Price forecasting; Electricity price forecasting; C53; C32; Q47

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