Price Forecasting Mechanisms of Modern Energy Markets

Abstract

The trends of European energy markets depend on the forecasting of fundamental price based on the modeling approaches for short-term physical electricity markets, including day-ahead trade markets for energy power, intra-day trade markets for energy power, trade for balancing or reserving energy capacity. The typical hierarchy of modeling on modern market consists of the fundamental model of long-term planning to years ahead (where stochastic aggregation or disaggregation for price forecasting takes place), the model of medium-term planning to months ahead (where the stochastic modeling of semi aggregated hydro energy with generation of cuts, at prices given, takes place), and the model of short-term planning to weeks ahead (where the deterministic modeling of disaggregated hydro energy, at prices given, takes place). The model of long-term planning is a fundamental one in the sense of a detailed and adequate description of market, supply, demand, and network topology. The models of medium-term and short-term planning are typical ones for regional markets. Energy storage technologies have changed modern energy markets. If the traditional power grids have worked like ultimate just-in-time supply chains without stocks and with almost immediate delivery of good (electricity), then modernized power grids will create new opportunities for their optimization and operation. The new power grids will resemble common supply chains with stocks (in the form of large-scale batteries and other energy storage devices), supply uncertainty (from variable power sources such as wind and solar power plants), high customer service requirements (under deregulating of the electricity market and entering of new competitors to the market), the newest pricing schemes (due to the new communication infrastructure allowing information transmission for real time pricing). An energy storage system can be viewed as a system of stocks, where the product stored is the energy instead of a traditional good. Then a series of models of energy storage management is based on the fundamental theory of inventory optimization. On the other hand, energy storage systems usually have more room for decision: in addition to the decision to purchase a product (as in classic inventory models), there may be decisions about the quantity and the price of product sales.