Dynamic discrete model for electricity price forecasting

Price in the wholesale energy markets is established by matching supply (what generators want to sell) and demand (what utilities and customers want to buy). Developing the proper pricing strategies is becoming increasingly relevant to producers and consumers in the new competitive electric power markets. Price-forecasting tools are essential for all market participants for their survival under new deregulated environment. The goal of this paper is to construct a discrete dynamic model which can be used to forecast energy price in this kind of market. This mathematical model consists of four recursive, first-order equations describing current demand, forecasted demand and amount of energy being produced by generators. Based on this model the price for the next period can be calculated. The basic concepts such as changes of supply and demand and their influence on the market are firstly listed and described. It is also shown that this model is universal and providing necessary data can be applied to different energy market.