Statistical Analysis of Trading Volumes on the Energy Market using a Local Parametric Approach

Abstract

International electricity trading in the European Union (EU) is the result of a liberalized energy market. Having access to inter-regional and international energy markets grants electric power producers and industrial consumers the possibility to hedge against diverse financial and non-financial risks. Therefore, a precise forecast of the energy demand becomes imminent to improve the risk management process of the electricity market players. A local adaptive multiplicative error model (MEM) is used to analyze and forecast German electricity demand traded at the European Power Exchange (EPEX SPOT). In order to assess the adaptive forecasts’ performance, we compare them against ad hoc fixed window forecasts. We find that in the relatively short-term both methods perform equally, while in the long-term the local adaptive forecasts outperform the ad hoc fixed window forecasts.