Leveraging Asynchronous Cross-border Market Data for Improved Day-Ahead Electricity Price Forecasting in European Markets

TL;DR

This study demonstrates that incorporating asynchronously published cross-border market data significantly enhances day-ahead electricity price forecasts in European markets, with implications for market participants' bidding strategies.

Contribution

It introduces a novel approach of using asynchronously published prices from interconnected markets to improve forecast accuracy in European electricity markets.

Findings

Forecast accuracy improved by 22% in Belgium and 9% in Sweden when using cross-border data.

Frequent model recalibration is necessary but increases computational costs.

More data from additional markets does not always improve forecast performance.

Abstract

Accurate short-term electricity price forecasting is crucial for strategically scheduling demand and generation bids in day-ahead markets. While data-driven techniques have shown considerable prowess in achieving high forecast accuracy in recent years, they rely heavily on the quality of input covariates. In this paper, we investigate whether asynchronously published prices as a result of differing gate closure times (GCTs) in some bidding zones can improve forecasting accuracy in other markets with later GCTs. Using a state-of-the-art ensemble of models, we show significant improvements of 22% and 9% in forecast accuracy in the Belgian (BE) and Swedish bidding zones (SE3) respectively, when including price data from interconnected markets with earlier GCT (Germany-Luxembourg, Austria, and Switzerland). This improvement holds for both general as well as extreme market conditions. Our analysis also yields further important insights: frequent model recalibration is necessary for maximum accuracy but comes at substantial additional computational costs, and using data from more markets does not always lead to better performance - a fact we delve deeper into with interpretability analysis of the forecast models. Overall, these findings provide valuable guidance for market participants and decision-makers aiming to optimize bidding strategies within increasingly interconnected and volatile European energy markets.