When Forecast Accuracy Fails: Rank Correlation and Decision Quality in Multi-Market Battery Storage Optimization

TL;DR

This study reveals that in multi-market battery storage trading, rank correlation (Kendall tau) better predicts revenue than traditional accuracy metrics like MAE, emphasizing the importance of ordinal forecast quality.

Contribution

It demonstrates that rank correlation is a more reliable predictor of trading success than forecast accuracy metrics, with stable thresholds across market conditions and implications for forecast evaluation.

Findings

Rank correlation (tau) predicts intraday dispatch value more effectively than MAE.

Forecasts with tau above 0.85-0.95 capture nearly all potential revenue.

Capacity revenue from reserve markets exceeds intraday revenue by 6.5 times per MW.

Abstract

Battery energy storage systems (BESS) participating in multi-market electricity trading require price forecasts to optimize dispatch decisions. A widely held assumption is that forecast accuracy, measured by standard metrics such as mean absolute error (MAE), drives trading performance. We challenge this assumption using a hierarchical three-layer optimization system trading simultaneously on frequency containment reserve (FCR), automatic frequency restoration reserve (aFRR), day-ahead, and continuous intraday (XBID) markets in Germany and Switzerland over 2020-2025, with real market data from Regelleistung.net and Swissgrid. We find that rank correlation (Kendall tau), rather than MAE, is the primary predictor of intraday dispatch value: forecasts above an empirical threshold of tau approximately 0.85-0.95 capture up to 97-100% of perfect-foresight revenue, while persistence forecasts with near-zero tau capture only 33%. This threshold is stable across market regimes and volatility levels, and reflects the ordinal structure of the dispatch problem. Furthermore, under reserve market constraints, FCR capacity revenue exceeds XBID by 6.5x per MW, making capacity allocation -- not forecast accuracy -- the primary driver of total revenue. In the Swiss market, hydrological surplus anomalies are significantly associated with balancing market revenue (p = 0.0005), a mechanism absent from existing German-focused literature. These findings reframe forecast evaluation for BESS operators: the relevant question is not what the MAE is, but whether the forecast achieves tau-sufficiency.