Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/86447 
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 07-036/4
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
In the literature the effects of weather on electricity sales are well-documented. However, studies that have investigated the impact of weather on electricity prices are still scarce (e.g. Knittel and Roberts, 2005), partly because the wholesale power markets have only recently been deregulated. We introduce the weather factor into well-known forecasting models to study its impact. We find that weather has explanatory power for the day-ahead power spot price. Using weather forecasts improves the forecast accuracy, and in particular new models with power transformations of weather forecast variables are significantly better in term of out-of-sample statistics than popular mean reverting models. For different power markets, such as Norway, Eastern Denmark and the Netherlands, we build specific models. The dissimilarity among these models indicates that weather forecasts influence not only the demand of electricity but also the supply side according to different electricity producing methods.
Subjects: 
Electricity prices
forecasting
GARCH models
weather forecasts
JEL: 
C53
G15
Q40
Document Type: 
Working Paper

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