Electricity Price Forecasting: Bridging Linear Models, Neural Networks and Online Learning
This addresses the need for accurate and efficient price predictions in volatile electricity markets, benefiting portfolio management and power plant operations, though it is an incremental improvement over existing hybrid models.
The paper tackled the problem of forecasting electricity prices by proposing a novel multivariate neural network that combines linear and nonlinear structures with online learning, achieving 12-13% RMSE and 15-18% MAE reductions compared to state-of-the-art benchmarks.
Precise day-ahead forecasts for electricity prices are crucial to ensure efficient portfolio management, support strategic decision-making for power plant operations, enable efficient battery storage optimization, and facilitate demand response planning. However, developing an accurate prediction model is highly challenging in an uncertain and volatile market environment. For instance, although linear models generally exhibit competitive performance in predicting electricity prices with minimal computational requirements, they fail to capture relevant nonlinear relationships. Nonlinear models, on the other hand, can improve forecasting accuracy with a surge in computational costs. We propose a novel multivariate neural network approach that combines linear and nonlinear feed-forward neural structures. Unlike previous hybrid models, our approach integrates online learning and forecast combination for efficient training and accuracy improvement. It also incorporates all relevant characteristics, particularly the fundamental relationships arising from wind and solar generation, electricity demand patterns, related energy fuel and carbon markets, in addition to autoregressive dynamics and calendar effects. Compared to the current state-of-the-art benchmark models, the proposed forecasting method significantly reduces computational cost while delivering superior forecasting accuracy (12-13% RMSE and 15-18% MAE reductions). Our results are derived from a six-year forecasting study conducted on major European electricity markets.