Predicting Day-Ahead Electricity Market Prices through the Integration of Macroeconomic Factors and Machine Learning Techniques

Abstract

Several events in the last years changed to some extent the common understanding of the electricity day-ahead market (DAM). The shape of the electricity price curve has been altered as some factors that underpinned the electricity price forecast (EPF) lost their importance and new influential factors emerged. In this paper, we aim to showcase the changes in EPF, understand the effects of uncertainties and propose a forecasting method using machine learning (ML) algorithms to cope with random events such as COVID-19 pandemic and the conflict in Black Sea region. By adjusting the training period according to the standard deviation that reflects the price volatility, feature engineering and by using two regressors for weighing the results, significant improvements in the performance of the EPF are achieved. One of the contributions of the proposed method consists in adjusting the training period considering the price variation. Thus, we introduce a rule-based approach given an empirical observation that for days with a higher growth in prices the training interval should be shortened, capturing the sharp variations of prices. The results of several cutting-edge ML algorithms represent the input for a predictive meta-model to obtain the best forecasting solution. The input dataset spans from Jan. 2019 to Aug. 2022, testing the proposed EPF method for both stable and more tumultuous intervals and proving its robustness. This analysis provides decision makers with an understanding of the price trends and suggests measures to combat spikes. Numerical findings indicate that on average mean absolute error (MAE) improved by 48% and root mean squared error (RMSE) improved by 44% compared to the baseline model (without feature engineering/adjusting training). When the output of the ML algorithms is weighted using the proposed meta-model, MAE further improved by 2.3% in 2020 and 5.14% in 2022. Less errors are recorded in stable years like 2019 and 2020 (MAE = 6.71, RMSE = 14.67) compared to 2021 and 2022 (MAE = 9.45, RMSE = 20.64).