Point and Interval Forecasting of Spot Electricity Prices: Linear vs. Non-Linear Time Series Models

Abstract

In this paper we assess the short-term forecasting power of different time series models in the Nord Pool electricity spot market. We evaluate the accuracy of both point and interval predictions; the latter are specifically important for risk management purposes where one is more interested in predicting intervals for future price movements than simply point estimates. We find evidence that non-linear regime-switching models outperform their linear counterparts and that the interval forecasts of all models are overestimated in the relatively non-volatile periods.