SFB649DP2016 035
Time-Adaptive Probabilistic Forecasts of Electricity Spot Prices with
Application to Risk Management
Brenda López Cabrera
Franziska Schulz
Abstract:
The increasing exposure to renewable energy has amplied the need for
risk management in electricity markets. Electricity price risk poses a major
challenge to market participants. We propose an approach to model and forecast
electricity prices taking into account information on renewable energy
production. While most literature focuses on point forecasting, our methodology
forecasts the whole distribution of electricity prices and incorporates
spike risk, which is of great value for risk management. It is based on
functional principal component analysis and time-adaptive nonparametric density
estimation techniques. The methodology is applied to electricity market data
from Germany. We find that renewable infeed effects both, the location and
the shape of spot price densities. A comparison with benchmark methods and
an application to risk management are provided.
Keywords:
electricity prices; residual load, probabilistic forecasting, value at risk,
expected shortfall, functional data analysis
JEL Classification:
C1, Q41, Q47