Economic Impact of Electricity Market Price Forecasting Errors: A Demand-Side Analysis

Abstract

Several techniques have been proposed in the literature to forecast electricity market prices and improve forecast accuracy. However, no studies have been reported examining the economic impact of price forecast inaccuracies on forecast users. Therefore, in this paper, the application of electricity market price forecasts to short-term operation scheduling of two typical and inherently different industrial loads is examined and the associated economic impact is analyzed. Using electricity market price forecasts as the expected next-day electricity prices, optimal operating schedules and the associated costs are determined for each load. These costs are compared with those of a ¿perfect¿ price forecast scenario in which actual prices are used to determine the operating schedules. Numerical results and discussions are provided based on price forecasts with different error characteristics.