Electricity Spot Price Modeling and Forecasting in European Markets

Abstract

In many competitive electricity markets around the world, the dynamic behavior of hourly electricity prices is subject to significant uncertainty and volatility due to electricity demand, availability of generation sources, fuel costs, and power plant availability. This work is devoted to describing and comparing the dynamics of electricity prices for some markets in Europe, selecting the five countries representing the largest economies in Western Europe (France, Germany, Italy, Spain, and the United Kingdom). Additionally, Denmark is included in the study to assess whether the size of the country is a determinant of price behavior. The six datasets of hourly price series, which exhibits a strong daily seasonality, are modelled using the most relevant well-known statistical models for time series analysis: ARIMA models and different versions of GARCH models. The comparison of the estimated models’ parameters, the analysis of outliers’ rate of appearance and the evaluation of out-of-sample one-day-ahead forecast let us draw some insightful similarities and dissimilarities between the analyzed countries.