The Evolution of Probabilistic Price Forecasting Techniques: A Review of the Day-Ahead, Intra-Day, and Balancing Markets

TL;DR

This paper reviews the evolution of probabilistic electricity price forecasting methods across various markets, highlighting recent advancements, challenges, and the importance of uncertainty quantification in volatile energy markets.

Contribution

It provides a comprehensive overview of probabilistic forecasting techniques from traditional to recent methods, emphasizing their application in complex, real-time electricity markets.

Findings

Probabilistic methods improve uncertainty quantification in electricity price forecasts.

Recent developments include conformal prediction and validity-focused approaches.

Challenges include lack of standardized benchmarks and issues in model validity.

Abstract

Electricity price forecasting has become a critical tool for decision-making in energy markets, particularly as the increasing penetration of renewable energy introduces greater volatility and uncertainty. Historically, research in this field has been dominated by point forecasting methods, which provide single-value predictions but fail to quantify uncertainty. However, as power markets evolve due to renewable integration, smart grids, and regulatory changes, the need for probabilistic forecasting has become more pronounced, offering a more comprehensive approach to risk assessment and market participation. This paper presents a review of probabilistic forecasting methods, tracing their evolution from Bayesian and distribution based approaches, through quantile regression techniques, to recent developments in conformal prediction. Particular emphasis is placed on advancements in probabilistic forecasting, including validity-focused methods which address key limitations in uncertainty estimation. Additionally, this review extends beyond the Day-Ahead Market to include the Intra-Day and Balancing Markets, where forecasting challenges are intensified by higher temporal granularity and real-time operational constraints. We examine state of the art methodologies, key evaluation metrics, and ongoing challenges, such as forecast validity, model selection, and the absence of standardised benchmarks, providing researchers and practitioners with a comprehensive and timely resource for navigating the complexities of modern electricity markets.