Bayesian hierarchical probabilistic forecasting of intraday electricity prices

We address the need for forecasting methodologies that handle large uncertainties in electricity prices for continuous intraday markets by incorporating parameter uncertainty and using a broad set of covariables. This study presents the first Bayesian forecasting of electricity prices traded on the German intraday market. Endogenous and exogenous covariables are handled via Orthogonal Matching Pursuit (OMP) and regularising priors. The target variable is the IDFull price index, with forecasts given as posterior predictive distributions. Validation uses the highly volatile 2022 electricity prices, which have seldom been studied. As a benchmark, we use all intraday transactions at the time of forecast to compute a live IDFull value. According to market efficiency, it should not be possible to improve on this last-price benchmark. However, we observe significant improvements in point measures and probability scores, including an average reduction of 5.9% in absolute errors and an average increase of 1.7% in accuracy when forecasting whether the IDFull exceeds the day-ahead price. Finally, we challenge the use of LASSO in electricity price forecasting, showing that OMP results in superior performance, specifically an average reduction of 22.7% in absolute error and 20.2% in the continuous ranked probability score. •Bayesian forecast model for intraday electricity prices, capturing full uncertainty.•Forecast study targeting the exceedingly volatile years of 2021 and 2022.•Orthogonal Matching Pursuit (OMP) significantly outperforms LASSO.•Weak-form market efficiency partially confirmed, beating last-price benchmark.•Full details for reproducing official EPEX price indices and statistics provided.