2022/08/31 by Emanuel Kohlscheen, Kohlscheen, Emanuel, Richhild Moessner +1
Economics, Econometrics and Finance · Engineering · #Energy Load and Power Forecasting #Energy, Environment, Economic Growth #FOS: Economics and business #General Economics (econ.GN) #Market Dynamics and Volatility
paper · pdf · doi:10.48550/arxiv.2208.14650
openalex publication_date 2022/08/31 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We analyse the drivers of European Power Exchange (EPEX) wholesale electricity prices between 2012 and early 2022 using machine learning. The agnostic random forest approach that we use is able to reduce in-sample root mean square errors (RMSEs) by around 50% when compared to a standard linear least square model. This indicates that non-linearities and interaction effects are key in wholesale electricity markets. Out-of-sample prediction errors using machine learning are (slightly) lower than even in-sample least square errors using a least square model. The effects of efforts to limit power consumption and green the energy matrix on wholesale electricity prices are first order. CO2 permit prices strongly impact electricity prices, as do the prices of source energy commodities. And carbon permit prices impact has clearly increased post-2021 (particularly for baseload prices). Among energy sources, natural gas has the largest effect on electricity prices. Importantly, the role of wind energy feed-in has slowly risen over time, and its impact is now roughly on par with that of coal.