Robust estimation and forecasting of the long-term seasonal component of electricity spot prices

We present the results of an extensive study on estimation and forecasting of the long-term seasonal component (LTSC) of electricity spot prices. We consider a battery of over 300 models, including monthly dummies and models based on Fourier or wavelet decomposition combined with linear or exponential decay. We find that the considered wavelet-based models are significantly better in terms of forecasting spot prices up to a year ahead than the commonly used monthly dummies and sine-based models. This result questions the validity and usefulness of stochastic models of spot electricity prices built on the latter two types of LTSC models.