Short term Electrical Price Forecasting:A review
Dr. P. R. Gandhi
Kiran K. Limbani
M.E. Electrical Engineering
Sardar Vallabhbhai Patel Institute of Technology,
Vasad, Gujarat, India
kiran.limbani8528@gmail.com
Abstract—Short term electrical price is emerging as an
important factor in the current competitive electrical market. In
deregulated market, the number of participant increases as the
market expands due to increase in the demand. Different
participants of the market tend to bid for the electricity based on
this forecast, resulting in the profit. Unlike load forecasting, price
forecasting is a difficult process due to the volatile behavior of the
price. Different approaches used for short term electrical price
forecasting have been reviewed in this paper. Various factors
influencing the electrical price and the different methods used
utilizing these factors to forecast electrical price are classified
and put for reference.
Keywords—price forecasting; electrical market; ANN; Time
series; hybrid models.
I. INTRODUCTION
Today, in this deregulated competitive electrical market
electrical price forecasting has become an essential factor for
bidding the right price avoiding the loss to the participant.
Different participants like buyers and sellers participate in the
bidding in the electrical market. An accurate day ahead price
forecasting inside the spot market place helps the power
suppliers to adjust their bidding techniques to gain the
maximum gain and at the different hand, clients can derive a
plan to maximize their utilities the usage of the power bought
from the pool, or use self production functionality to shield
themselves towards excessive charges. Electrical load/demand
forecast also plays the important role in the competitive
market. As the price mainly depend on the demand factor, a
accurate demand forecast may lead to accurate price forecast.
Today the mean absolute percentage error (MAPE) for
electrical load forecast to be in the range of 0.51% - 4% is
quite normal [1-5]. While for electrical price forecasting this is
not the case as like load forecasting. Electrical price is much
of a nonlinear quantity.
Fig. 1. Electrical price over 117 hours.
Department of Electrical Engineering
Sardar Vallabhbhai Patel Institute of Technology,
Vasad, Gujarat, India
pimalgandhi@gmail.com
As electrical power cannot be stores, necessitates the
balance between the demand and load. Electrical price has
high spikes, is much volatile, complex and unpredictable due
to dependency over the bidding strategies of the market
participants and the market environment. As it is important
and quite complex, many academicians and researches are
trying to forecast the electrical price with minimum error
possible. Over the decades many methods and approaches are
proposed and some of them are reviewed in this paper.
This paper further follows: Section II – the factors
influencing the price. Various methods used for the electrical
price forecasting presented by various researchers are
discussed in section III and the results of these methods are
compared in section IV. Section V concludes the paper.
II. FACTORS INFLUENCING THE PRICE
As it is observed form the figure of the electrical price over
the period of just 116 hours that electrical price is not having
any of the components that usually load curve contains. There
is rarely a seasonal curve, has high spike and uncertain.
Electrical price is volatile and so it causes risks to the market
participants [6]. There are many factors that influence the
price behaviour as load, demand, line outages, line constraints
and many more. Main factors influencing price are shown in
the figure 2.
Load and
Demand
Market
strategies
Reserves
Fuel prices
Electrical Genrator
price outages
Line
Holidays
outages
Weather
conditions
Fig. 2. Factors influencing electrical prices
Apart from the above factors, there are many other factors
that contribute to the volatile behaviour of the electrical price.
These factors are as follows [7]:
 • Type of generating station.
• Generating capacity of the station.
• Historical load, demand and price.
• System’s binding constraints
• Market conditions
• Country’s GDP.
• Time of the day.
As the demand is high and the balance between the
generation and demand is to be maintained, the electrical price
tends to be high than usual. This demand is indirectly depend-
b) Different inputs used for price forecasting.
Table 1: Input variables used for price forecasting [7].
Input variable
(1) Historical load
(2) System load rate, (3) imports/exports, (4) capacity excess/shortfall
(5) Historical reserves
(6) generation capacity, (7) net-tie flows, (8) system’s binding constraints,
(9) line limits
(10) Past MCQ (market-clearing quantity)
(11) Forecast load
(12)Forecast reserves, (13) temperature, (14) dew point temperature, (15)
weather, (16) fuel price
(17) Generation outages, (18) line status, (19) line contingency
information
(20)Historical prices
(21)Demand elasticity, (22) bidding strategies
(23)Settlement period, (24) day type, (25) month, (26) holiday code,
(27)seasonal index
d – day, t – settlement period number of the day.
-ent on the calendar. The holidays and weekends have less
industrial demand but more of the domestic demand. Seasons
also affects the demand as so the price is affected. The fuel
cost and type of generating station plays important role in
price behaviour. Renewable energy based power plants have
higher electrical price than that of the non renewable based
power plants. Line contingency and generator outages
increases the price as disturbance is created in the demand-
supply balanced curve. Line outages and constraints limit the
power flow causing extra loss in the transmission and increase
in price. Market bidding strategies also contributes towards the
major participants are affected directly from it.
a) Types of prices.
Following are the two different prices associated with the
electrical price forecast.
• Location based Marginal Prices (LMP/LBMP).
• Market Clearing Price (MCP).
Market clearing price (MCP) is the most basic pricing in
the competitive electricity market. In the absence of
transmission congestion, MCP is the only price that would be
required to represent various zones and buses in power
systems. However, when congestion occurs, electricity prices
will be more in congested zones and zonal market clearing
prices (ZMCPs) or locational marginal prices (LMPs) could be
Time period for which data is used
f(load); (d _ m, t), m = 1, 2, 3, 4, 7, 14, 21, 28
(d, t), (d, t _ 1), (d _ 1, t), (d _ 2, t), (d _ 7, t)
(d, t _ 2), (d, t _ 1), (d, t)
(d, t)
(d _ 1, t)
(d, t _ 2), (d, t _ 1), (d, t)
(d, t)
(d, t)
f(price); (d _ m, t _ n), m = 0, 1, 2, 3, 4, 5, 6, 7,
8, 14, 21, 28, 364 and n = 0, 1, 2, 3, 4.
(d, t)
(d, t)
individual buses in the entire power system. LMP is the cost
of supplying the next MW of load at a specific location, after
considering the generation marginal cost, cost of transmission
congestion, and losses. When there is no congestion, LMP is
same as MCP. When there is congestion, the optimal power
flow (OPF) solution considers transmission line constraints in
order to balance supply and demand at each bus [8].
The type of price to be used for forecasting depends on the
market you are selecting for the price forecast. New York
Independent Service operators use LBMP for forecast,
Mainland Spain uses MCP while in California both the prices
are forecasted. MCP is eminent for transactions behind single
ISO leading to easy determination of settlement costs.

III. VARIOUS METHODS USED FOR PRICE FORECSTING
Development in the techniques is still an open and important
field for the research and several papers are published every
year over this topic and still there is a lot of scope of
development. The forecasting methods can be divided as
traditional methods and artificial intelligent methods in a
broad category [6-8]. Further classifications of the methods
analyzed in this paper are given in fig 3.
• ARIMA, DYNAMIC REGRESSSION
Statistical • ARMA, TRANSFER FUNCTION METHOD
[9-13]
• ANN, RNN, AWNN
Neural
Network
• RBNN, Fuzzy based inference system
[14-25]
• Neuro-fuzzy, ARIMA-Neural Network
Hybrid • Hybrid Neuro evolutionary, NN-EA
[26-33]
Fig. 3. Forecasting methods analysed
ANN-Artificial Neural Network; RNN-Recurrent Neural Network; AWNN-
Adaptive Wavelet based Neural Network; RBNN-Radial Basis Neural
Network; EA-Evolutionary Algorithm.
The forecasting methods can mainly classified into three main
categories as statistical methods, artificial intelligent methods
and simulation methods. Simulation methods require a
mathematical model of the power market, load data, blackout
data, outages, and bids data from business sector members.
Performing simulation takes extremely particular aptitudes
and knowledge of power system and in addition complex
programming skills. Price forecast accuracy is profoundly
subordinate upon the nature of the data; the load estimate at
every hub of the business sector is a driver of the electrical
price forecast. Statistical and AI-based techniques do not
require such far reaching learning of business sector
operations. They utilize past data of Prices, climate, outages,
and loads to forecast future price. Their usage expense is not
as much as those of the statistical strategies. In any case, they
regularly find challenges in predicting price spikes. These
spikes are generally because of congestions in the
transmission system, which can in some cases be gotten
through simulation techniques [7]. Time series based Dynamic
Regression (DR) and Transfer Function (TF) approaches are
applied to predict the spikes of price expanded over the week
for mainland Spain and California electricity market [9].
a) Auto Regressive Integrated Moving Average (ARIMA).
ARIMA model is basically a time series model so the
future value is assumed as the linear function dependent on the
previous available data and the errors. So the general form of
the equation is
Yt = α0 + β1Yt-1 + β2 Yt-2 + . . . . + βpYt-p +
Ɛt + α1 Ɛt-1 + α2 Ɛt-2 + . . . . + αq Ɛt-q (1)
Where Yt and Ɛt are the actual value and random error at time
period t, respectively, and βi (i=1, 2, 3,…., p) and αj (j=1, 2,
3,…., q) are model parameters. P and Q are integers and are
referred to as orders of the model [10-13]. ARIMA model is
infact the combination of the AR i.e. Autoregression and MA
i.e. Moving Average models integrated to make the function
more linear. If the value of P refers to the order of the AR and
Q refers to the order of the MA terms respectively. D is used
to refer the order of the integral part of the arima.
Hence Arima (p, d, q) is the general representation of the
model. Parameters of the models are generally estimated using
the least square estimation method, as proper parameter
minimizes the overall measure of the errors. With the
begening of restructuring process, autoregressive (AR) models
were used to predict weekly prices, like in the Norwegian
system [9]. In [10-11], a more efficient time-series model than
the AR model, i.e., autoregressive integrated moving average
(ARIMA), has been used for price forecasting of the Spanish
and Californian electricity markets while two other time-series
models - dynamic regression and linear transfer [12] function
models, have been proposed for short-term price forecasting.
These models consider the curve to be linear, and if not tries to
make it linear and tries to predict but this doesnot succesfully
imply over price curve. This hypothesis can be implied with
the curve with less non-linearity. Hence the price series violate
this assumption. Although these models have been
successfully applied to other commodity markets, however,
their application to electricity prices encounters difficulty. So
in order to overcome this difficulty many hybrid approaches
where ARIMA plays eminent role in making the curve more
linear in combination with the different types of Artificial
Neural Network are also developed [13].
b) Artificial Neural Network.
Artificial Neural network models exhibit the inherent dynamic
behaviour. They are composed of the neurons operating in
parallel making them most efficient in pridicting the future
variable on the basis of the past observations. The basic
diagram of the artificial neural network consist of mainly three
layers input layer, hidden layer and output layer as shown in
figure 4.The number of neurons varies as per the requirement.
Selection of proper number of neurons and the hidden layer is
important. W is the weight provided to the output of neuron of
one layer fed to the neuron of another layer. Subscript ‘i’ is the
input layer, ‘j’ is the hidden layer and ‘k’ is output layer. A
neural network can be trained to perform a particular function
by adjusting the values of the connections (weights) between
elements. In load & price forecasting, typically, many
input/output pairs are needed to train a neural network.
ANN like number of neurons, weights etc are calculated using
differential evolution in Radial Basis Neural Network trained
by fuzzy c-means [21] while some ANN used enhanced
probability theorem for the same [22]. Some of the methods
have tried to predict the price but results are not satisfying
while Elman Neural Network [23] shows some impressive
results than others. Apart from ANN, Fuzzy logic is also used
for the price forecast in fuzzy inference system [24] and in
combination with different structure of ANN [25-26].
Due to the local properties of wavelets and the concept of
adapting the wavelet shape according to training data set
instead of adapting the parameters of the fixed shape basis
function, wavelet theorem in combined with various models
like ARIMA and GARCH [27], ANN [28] and with various
hybrid models is applied in the field of function learning and
non linear system identification. Adaptive wavelet theorems
are applied to short term electricity price forecasting. In [29]
Wavelet transform is used with the hybrid of ANN and
Evolutionary Algorithm (EA) for the task to find the best
solution for the problem. While in [30-31] WT is used with
hybrid combination of ANN and Fuzzy to forecast the weekly
prices of the Spain electricity market.

Fig. 4. Artificial Neural Network. IV. RESULTS

Table 2. Comparative result of all the methods.
The neural network is trained, tested and then used for the
forecasting purposes. Proper training of the network is an
Model Error Criteria Percentage %
important procedure. Over training may lead to poor results ARIMA[11] WMAE 13.31
and so will be the under trained network. So network is often T.F. & D.R.[12] √FMSE 13.36
trained again if the results are not acceptable. Adaptive ANN[14] MAPE 13.58
ANN-modified LM [15] MAPE 9.35
ANN-LM[16-18] MAPE 10
Many academicians and researches have published many ANN-LM (ENGLAND)[19] MAPE 9.14
papers for electrical price forecasting using various methods ANN-LM (ONTARIO)[20] MAPE 13.6
and implementing that methods over to many markets. The RBNN[21] MAPE 7.8496
type of price selected for the forecast solely depends on the EPBNN[22] MAPE 8.8
ELMAN[23] MAPE 6.56
type of market it is forecasted and the market importance of NEURO-FUZZY[25] DME 7.89
that price. Due to its efficiency in predicting the nonlinear AWNN[28] WMAPE 7.2688
behaviour of variable different types of ANN methods have HYBRID WME 4.57
(WT+ANN+EA)[29]
been proposed in large number for electrical price forecast.
HYBRID MAPE 6.53
Adaptive ANN is used for forecasting as well as to show the (WT+ANN+FUZZY) [30-31]
relationship between different variables used in the forecast WMSE-Weekly Mean Absolute Error; FMSE-Forecasted Mean Square Error;
[14]. Modified Levenberg-Marquadt (LM) to Gauss-Newton MAPE-Mean Absolute Percentage Error; DME-Daily Mean Error; WMAPE-
Weekly MAPE; WME-Weekly Mean Error.
method [15] used for training the ANN gives better result than
the simple Levenberg-Marquadt method used for the There are various methods proposed for short term electricity
training[16-18]. price forecasting which may have good results but time also
matters while when we are dealing with real time system. It is
The same method applied to different market brings
evident from the above comparison that as we move away
different results. ANN trained by LM used for New England
from the statistical methods to AI methods and then hybrid
electricity market [19] brings about good result than it is used
methods results obtained are quite better the former. Hybrid
for Ontario electricity market [20]. Different parameter of
methods are efficient in predicting the nonlinearity of price.
 V. CONCLUSION
Price forecasting is quite a difficult task unlike load
forecasting. Various factors influence the behaviour of the
price and consideration of different factors depends on the
effect of it over the price curve behaviour. There is no specific
approach for efficient results. Still developments are ongoing
in this field as error is not at all close to load forecasting.
Different methods results in different outcomes for different
electricity market. So selection of proper method by trial and
error method is suggested. It seems that ANN and Hybrid
methods bring out some interesting results than another. Yet
there is no systematic evidence of out-performance of one
model over the other models on a consistent basis. With the
development of different computational methods price
forecasting can be understood and predicted properly over
coming decades.
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