Forecasting of daily electricity spot prices by incorporating intra-day relationships: Evidence form the UK power market

We show that incorporating the intra-day relationships of electricity prices improves the accuracy of forecasts of daily electricity spot prices. We use half-hourly data from the UK power market to model the spot prices directly (via ARX and Vector ARX models) and indirectly (via factor models). The forecasting performance of five econometric models is evaluated and compared with that of a univariate model, which uses only (aggregated) daily data. The results indicate that there are forecast improvements from incorporating the disaggregated data, especially, when the forecast horizon exceeds one week. Additional improvements are achieved when the correlation structure of the intra-day relationships is explored.