Mean-based method of estimating financial cost of load forecasting

In liberalized electricity markets participants are obliged to schedule their electricity plans in advance because in a power system, equilibrium of production and consumption must be kept at all times. In order for power system to function, market participants forecast their plans trying to minimize their load forecasting error. Deviations from their realized energy through sale and purchase of balancing energy present a financial cost. Since it is a competitive market, in order to remain profitable, participants try to minimize their financial cost and risk exposure to balancing energy mainly by lowering their load forecasting error. In this paper we investigate behaviour of balancing energy and its dependency on forecasting strategy, load forecasting error, size of a market participant and energy prices. As a result we propose an equation for estimation of financial cost of load forecasting.