Statistical models to predict electricity prices

In the last years, electricity markets have been changing from monopolies to liberalized markets, and consequently, with the entrance of new providers, there has been an increase of competitiveness. With the creation of open markets utilities faced the need to understand the way electricity prices change, in order to better develop bidding and hedging strategies. This paper focuses on the Spanish electricity market. In order to develop a model capable of evaluating and predicting the Spanish electricity prices, we use data from January 1998 until August 2005. In addition, as one of the aims is to get short and medium term forecasts, we analyze the data in a daily and monthly basis, using different techniques. In the daily prices, we use SARIMA models complemented with GARCH models. For the monthly prices, two different approaches are considered: time series models, and generalized least squares models with autocorrelated residuals.