When supply meets demand: the case of hourly spot electricity prices

We use a supply-demand framework to model the hourly day-ahead spot price of electricity based on publicly available information. With the model we can forecast the level and the probability of a spike in the spot price defined as the spot price being above a certain threshold. Several European countries have recently started publishing day-ahead forecasts of the available supply. In this paper we show potential uses of such indicators and test their forecasting power in an hourly spot price model. We conclude that a forecast of the available supply can be part of a useful indicator and discuss ways to further improve the forecasts