Modeling and forecasting of the long-term seasonal component of the EEX and Nord Pool spot prices

We present the results of an extensive study on modeling and forecasting of the long-term seasonal component (LTSC) of electricity spot prices. We consider a vast array of models including linear regressions, monthly dummies, sinusoidal decompositions and wavelet smoothers. We find that in terms of forecasting EEX and Nord Pool spot prices up to a year ahead, wavelet-based models significantly outperform all considered piecewise constant and sine-based models. This result challenges the traditional approach to deseasonalize spot electricity prices by fitting monthly dummies or sinusoidal functions.