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Published in IET Generation, Transmission & Distribution
Received on 19th December 2013
Revised on 3rd April 2014
Accepted on 12th April 2014
doi: 10.1049/iet-gtd.2013.0927

ISSN 1751-8687

A hybrid model for integrated day-ahead electricity

price and load forecasting in smart grid
Lei Wu1, Mohammad Shahidehpour2
1
Electrical and Computer Engineering Department, Clarkson University, Potsdam, NY 13699, USA
2
Electrical and Computer Engineering Department, Illinois Institute of Technology, Chicago, IL 60616, USA
E-mail: lwu@clarkson.edu

Abstract: Load and price forecasting are two key issues for market participants and system operators in electricity markets. Most
existing works predict load and price separately. However, a dynamic pricing type scenario is envisioned in smart grid, where
consumers may have the ability to react to constantly changing price signals by shifting electricity usages from expensive
hours to others, which would consequently impact electricity prices. Thus, price and load signals are strongly coupled, and
previous separated forecast models may not be as effective. In this study, a two-stage integrated price and load forecasting
framework is developed. The first stage provides initial price and load forecasts separately, and the second stage considers
load and price interaction with initial forecasts as inputs. At each stage, a hybrid time-series and adaptive wavelet neural
network (AWNN) model is used, in which multivariate autoregressive integrated moving average catches the linear
relationship of price and load log return series, generalised autoregressive conditional heteroscedastic unveils heteroscedastic
character of residuals and AWNN presents non-linear impacts. Several criteria such as average mean absolute percentage error
and error variance are used to measure the forecasting accuracy. Illustrative forecasting examples of the New York
Independent System Operator market are presented to show the efficiency of the proposed method.

1 Introduction few days), mid-term (a few months) and long-term (a few

With the introduction of restructuring to the electric power
industry, the price of electricity is becoming the focus of all
activities in electricity markets. Price forecasting techniques
are used for bidding purposes and hedging against
volatilities. With a good next-day electricity market clearing
price forecast, a market participant would be able to
delineate better financial decisions. That is, a power
producer can develop appropriate strategies for maximising
its payoff and a consumer can minimise its utilisation cost
[1]. In addition, an accurate short-term load forecasting is
the basis of the planning and the operation of power
systems. With a good next-day system load forecast,
independent system operators (ISO) would be able to
effectively schedule system generation and transmission
resources for the secure and economic operation of power
systems [1].
Electricity has distinct characteristics as compared to other
commodities as it cannot be stored economically. In addition,
the transmission congestion may prevent a free exchange of
power among control areas. Thus, electricity price and load
signals have complex characteristics such as non-linearity
and non-stationarity, and can exhibit a major volatility. In
turn, the application of forecasting methods prevailed in
other commodities can pose large errors in electricity price
and load forecasting. For different applications, electricity
price and load forecasting can be categorised into very
short-term (several minutes to a few hours), short-term (a
years). This paper focuses on the day-ahead price and load
forecasting in electricity markets.
Many efforts have been devoted to forecasting in power
systems. Most of the existing works predict load and price
signals separately. The load forecasting has been conducted
by simulation method, statistical method, or a combination
of the two, with varying degrees of success. The simulation
method attempts to reproduce the load growth process and
identify reasons behind the load growth via analytical
approaches [1]. The statistical method uses linear regression
[2], back propagation (BP) neural network [3],
co-evolutionary [4] and hybrid models [5] for calculating
loads, in which a large data set is needed. Recently, Zhang
et al. [6] developed an ensemble learning strategy based
model for the short-term load forecasting, in which each
extreme learning machine selects random input parameters
and random hidden nodes for achieving a better
generalisation performance. Han et al. [7] presented a
composite approach for the ultra-short-term multi-node
active and reactive load forecasting, in which the
recursive least square support vector machine algorithm
was used to describe the dynamic characteristics of
multi-node active load distribution factors and power
factors, and the Takagi–Sugeno fuzzy control technique was
adopted for the feedback compensation. Using these
methods, traditional day-ahead load forecasts have reached
a comfortable state of performance with errors that are
within 1–5% [2–7].

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On the other hand, short-time price forecasting is a difficult
task, which is mainly caused by electricity price properties
such as spikes, mean reversion, seasonality and fat tails.
There are several methods applied to day-ahead electricity
price forecasting with varying degrees of success, including
fundamental models, mathematical finance models, game
theory models and regression models. Fundamental models
simulate the exact physical characteristics of power system
components and express electricity prices based on
marginal generation costs, transmission congestions,
network losses and ancillary service requests [1]. The most
difficult issue is that fundamental models may require
significant real-time data on power systems, which could
result in a complex computation process. Mathematical
finance models are originally developed and widely used
for stock and interest rate markets [8], which could reflect
electricity price volatility caused by the supply and demand
balancing. However, it is difficult to incorporate physical
characteristics of power systems, such as transmission
congestions, network losses and contingencies, into finance
models, which may cause a discrepancy between the
finance model solution and the real-time status of power
systems.
Price forecasting models that utilise game theory are
particularly focused on impacts of bidders’ strategic
behaviours on market equilibriums and electricity prices [9,
10]. One presumption in the game theory based price
forecasting models is that all players are rational, which is
not always the case in electricity markets. Other drawbacks
are represented by time-consuming processes for calculating
the Nash equilibriums. Regression models, including
time-series and artificial intelligence models, relate
electricity price fluctuations to historical prices and other
explanatory factors such as temperature, time of day and
load demand. Autoregressive integrated moving average
(ARIMA) time series models [11], hybrid wavelet transform
and ARIMA and/or generalised autoregressive conditional
heteroscedastic (GARCH) models [12, 13], artificial neural
network (ANN) [14] and hybrid models [15, 16] have been
applied for day-ahead electricity price forecasting. The
regression method is simple and computationally efficient.
It requires detailed and accurate historical data and proper
models (that is, orders of time series models and details of
layer structures of artificial intelligence models) for
adaptation and forecasting. Recently, Elattar [17] integrated
the kernel principal component analysis method with the
local informative vector machine approach for the
short-term electricity price forecasting in competitive
electricity market, in which the kernel principal component
analysis extract features of the input time series data and
obtains kernel principal components for constructing the
phase space. Amjady et al. [18] presented a price forecast
method which adopted a modified relief algorithm for
feature selection and a hybrid neural network for prediction.
Miranian et al. [19] proposed a singular spectrum analysis
based model-free approach for the day-ahead electricity
price forecasting. A singular spectrum analysis technique
was employed to decompose the original electricity price
series into trend, periodic and noisy components, and only
trend and periodic components were used for forecasting
the day-ahead electricity prices. In addition, probabilistic
interval forecasting models [20] were studied for
quantifying the uncertainties of potential price forecasts.
Aggarwal et al. [21] compared various models, and
concluded that there is no systematic evidence of
out-performance of one model over other models on a
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consistent basis. Using state-of-the-art forecasting methods,
the short-term price forecasting usually has an error of 5–
20% [8–21, 26].
However, short-term price and load forecasting is far from
reaching maturity, especially with the integration of
price-sensitive loads in emerging power systems. In smart
grid, price-based demand response (DR) programs provide
consumers opportunities and incentives to change their
regular consumption patterns in response to electricity price
changes, which would help power markets set efficient
energy prices, mitigate market power, improve economic
efficiency and increase security by allocating scarce
resources [22–24]. It is reported in [25] that 9% of peak
demand could be offset if existing DR programs were
expanded to cover the entire country and with an additional
small number of price-responsive programs. In addition,
20% of peak demand could be offset by DR programs if
dynamic pricing programs were launched to all electric
consumers. However, DR integration introduces
price-related demand variations and makes the load profile
stochastic and price-sensitive. Under this circumstance, the
impact of electricity prices on system loads becomes more
visible, which is not the case in a traditionally
price-insensitive environment. Thus, price-sensitive load
forecasting may need additional price related information as
inputs, and traditional short-term price-insensitive load
forecasting models would not work. However,
state-of-the-art forecasting techniques would limit
short-term price forecasting errors to 5–20% [8–21, 26],
which may deteriorate the accuracy of price-sensitive load
forecasts. In addition, price-sensitive DR loads would
further impact market clearing and in turn affect final
prices. Thus, in smart grid with price-sensitive DR loads,
price and load signals are strongly coupled, and previous
works on separate load and price forecasting would not be
as effective.
In this paper, a two-stage integrated day-ahead price and
load forecasting framework is developed. The first stage
provides initial price and load forecasts separately, and the
second stage considers the interaction between load and
price signals by using initial forecasts from the first stage as
inputs. At each stage, return series is used instead of the
original price/load series to better capture statistical
properties. In addition, a hybrid time-series and adaptive
wavelet neural network (AWNN) model is used for the
forecast at each stage, in which the multivariate ARIMA
model is used to capture the linear relationship of price and
load log return series, the GARCH model unveils the
heteroscedastic character of residuals, and AWNN presents
the non-linear and non-stationary characteristics. The
proposed hybrid model provides a 24 h electricity price and
load forecast of the next day based on historical data.
Amjady and Daraeepour [27] and Voronin and Partanen
[28] presented mixed price and load forecasts using neural
network and hybrid models. Different from [27, 28], the
main contribution of the paper is that the proposed
two-stage integrated day-ahead price and load forecasting
framework proposed an iterative prediction procedure for
analysing the interaction between price and load signals in
smart grid.
Several criteria such as the average mean absolute
percentage error (AMAPE) and the variance of absolute
percentage errors are used to assess the proposed model and
measure the forecasting accuracy. To illustrate the proposed
two-stage integrated forecasting framework, price and load
forecasts in the New York Independent System Operator
IET Gener. Transm. Distrib., 2014, Vol. 8, Iss. 12, pp. 1937–1950
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(NYISO) electricity market [29] are calculated and discussed.
Numerical case studies illustrate that the proposed integrated
price and load forecasting framework outperforms separated
load and price forecasting models in most cases. Another
advantage of the proposed integrated framework is that
unlike traditional price forecasting methods which assume
the load information is provided on the forecast day, the
proposed model would forecast either price or load signal
without considering a priori information on the other
quantity for the forecast day, which can be better adapted to
real conditions of an electricity market in smart grid.
The rest of the paper is organised as follows. Section 2
describes the proposed hybrid integrated day-ahead price
and load forecasting framework. Section 3 presents
illustrative examples to show the proposed model applied to
the NYISO electricity market. Conclusions are provided in
Section 4. Fig. 1 Flowchart of the proposed integrated forecasting
framework
2 Forecasting methodologies
The proposed two-stage forecasting framework provides an day D from the previous iteration. Then, forecast results
in-depth analysis on the interaction between price and load from the multivariate ARIMA model are used as input to
signals by incorporating short-term load and price the GARCH model. The GARCH model output includes
forecasting in one framework, as shown in Fig. 1, which non-constant residuals. The multivariate ARIMA and
would derive more accurate, adaptive and effective GARCH results are combined and used as input to AWNN.
forecasting results. The first stage provides initial price and The AWNN output is the final price forecast.
load forecasts of day D separately, with historical price and A similar hybrid model is used for the first stage price/load
load data available up to day D − 1, respectively. The forecasts and the second stage load forecast. The only
second stage is an iterative process, which considers the difference is that the second stage forecast modules
interdependence of price and load series by incorporating consider the interaction between price and load signals by
the initial price and load forecasts of day D calculated at including price/load signals as explanatory factors, whereas
the first stage. That is, the inputs to the second stage load the first stage load forecast in the hybrid model only uses
forecasting module include historical price and load data up historical load data up to day D − 1, and the first stage price
to day D − 1 and the initial price forecasts of day D, and forecast in the hybrid model only uses historical price data
the inputs to the second stage price forecasting module up to day D − 1. At each stage, instead of the original
consist of historical load and price data up to day D − 1 and signal series, the one-period continuously compounded
the initial load forecasts of day D. The new forecasts of day return series is used to achieve more attractive statistical
D replace the previous ones, and the iterative process properties. Other explanatory factors, such as weather
continues until no significant difference between the two condition, available ancillary services, power exchanges and
successive forecasts is observed, which is measured by the availabilities of generators and transmission lines are not
AMAPE given in (1) and (2), where Lkt and Ptk are load and included in the proposed forecasting framework. Such
price forecasts of hour t at iteration k, respectively, and T is factors are less important for price and load forecasting in
the forecasting period most situations, and their inclusion may cause over-fitting
or even deteriorate the accuracy of the forecasting method.
   Feature selection techniques, such as principal component
1

/ 1

T   T analysis, factor analysis and feature clustering, can be
AMAPEkP = · Pk − Pk−1  · Pk−1 · 100%
T t=1 t t
T t=1 t adopted to filter out irrelevant and redundant candidate
inputs [30, 31]. In the following subsections, data
(1) preprocess, the individual multivariate ARIMA, GARCH
and AWNN models, as well as the assessment of
   forecasting results are discussed in detail.
1

/ 1

T   T
AMAPEkL = · Lk − Lk−1  · Lk−1 · 100%
t t
T t=1 T t=1 t
(2)

A hybrid model is used for price and load forecasts at each

stage, which includes multivariate ARIMA to forecast the
linear relationship of price and load log return series,
GARCH to simulate non-constant variances of residuals
and AWNN to forecast the non-linear and non-stationary
impacts of signals. Fig. 2 illustrates the hybrid model used
in the second stage price forecast module. It starts with the
multivariate ARIMA model with input data of historical Fig. 2 Flowchart of the proposed hybrid forecasting model
prices and load data update to D − 1 and load forecasts of adopted in the second stage price forecast module

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Fig. 3 Price series of NYISO from 1 July 2012 to 31 October 2012
2.1 Data preprocess
A key feature that distinguishes electricity price and load
signals from other time series lies on the fact that they are
very volatile. Return series has more attractive statistical
properties and thus is easier to handle than the original
price and load signals [32]. There are several common
Fig. 6 Load return series of NYISO from 1 July 2012 to 31
October 2012
comprehended than those of the original price and load
signals. Therefore the one-period continuously compounded
return series (4) is used in the stationary multivariate
ARIMA model
definitions of asset return series [33]. In this paper, the
continuously compounded return is used. The one-period
continuously compounded return series for the price signal
is defined in (3), where P̃t and P̃r,t are the actual price value
and the actual one-period continuously compounded price
return series value of time t
   2.2
P̃r,t = ln P̃t − ln P̃t−1 = ln P̃t /P̃t−1 (3)
The continuously compounded return series enjoys several
advantages over the original data. First, the multiperiod
return (4) is simply the sum of one-period continuously
compounded returns. Second, statistical properties of the
continuously compounded return are more tractable. Figs. 3
and 4 show hourly electricity price and load signals from 1
July 2012 to 31 October 2012 of the NYISO market [29].
Figs. 5 and 6 show the return series during the same period.
Comparing the four figures, it shows that the mean values
of return series are close to zero and the variability of return
series over time looks more homogeneous than that of the
original price and load signals. Thus, statistical
characteristics of return series would be better
Fig. 4 Load series of NYISO from 1 July 2012 to 31 October 2012
Fig. 5 Price return series of NYISO from 1 July 2012 to 31
October 2012
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t−1 
P̃rt (t) = ln P̃t − ln P̃t−t = ln P̃t−j − ln P̃t−j−1
j=0
= P̃r + P̃r(t−1) + · · · + P̃r(t−t+1) (4)
Multivariate ARIMA time series model
Multivariate ARIMA is a class of stationary stochastic model.
The series in Figs. 3 and 4 show non-equilibrium at a constant
mean level, which means that the original price and load
signals are non-stationary. Using suitable differences, a
homogeneous non-stationary time series can be transferred
to stationary mixed autoregressive-moving average process.
Equation (5) shows the multivariate ARIMA model used in
the second stage price forecasting module. A similar
formulation is used in the first stage price/load forecasting
and the second stage load forecasting. Load and price
series present multiple seasonality characteristic, including
daily and weekly periodicity. In the multivariate ARIMA
model (5), f(B) and f(B) would contain factors of
the form (1 − f24B 24), (1 − f168B 168), (1 − j24B 24) and/or
(1 − j168B 168) for representing daily and weekly periodicity
of price and load series
 
f(B) · (1 − B)d1 · ln P̃t = w(B) · (1 − B)d2 · ln L̃t
+ u(B) · at (5)

where at is a Gaussian N 0, s2a white noise process, f(B) =
1 − f1·B − , …, − fp·Bp, f (B) = 1 − f1·B − , …, − fb·Bb
and θ(B) = 1 − θ1·B − , …, − θq·Bq. B is the backshift
operator, that is, Bp · P̃t = P̃(t − p).
A homogeneous non-stationary time series can be
transferred to a stationary time series  by taking a proper
degree of differencing. From (5), ln P̃t is a homogeneous
non-stationary time series. By applying suitable differences
of orders  d1 and d2, that  P̃rt (d1) =
is,
(1 − B)d1 · ln P̃t and L̃rt (d2) = (1 − B)d2 · ln L̃t , the new
return series P̃rt (d1) and L̃rt (d2) are transferred to stationary
stochastic processes and fitted in a standard ARMAX ( p, q,
b) model as (6). That is, after transforming the original data
into log return series and adding proper orders of
differences, (6) would capture the linear relationship
between price/load log return series at hour t and
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Table 1 Shapiro–Wilk test for normality of price and load data sets of NYISO from 1 July 2012 to 31 October 2012
Price data Load data

Test statistic P-value Order of differences Test statistic P-value Order of differences

original series 0.8791 0.0000 1 0.9818 0.0000 1

log return series 0.9677 0.0000 1 0.9741 0.0000 1
01:00 log return series 0.9695 0.0370 2 0.9890 0.9008 1
02:00 log return series 0.9739 0.0870 4 0.9870 0.8102 1
03:00 log return series 0.9609 0.0110 4 0.9889 0.9269 1
04:00 log return series 0.9618 0.0145 7 0.9918 0.6203 1
05:00 log return series 0.9648 0.0170 1 0.9888 0.9108 1
06:00 log return series 0.9932 0.2383 1 0.9930 0.2560 1
07:00 log return series 0.9842 0.4995 1 0.9800 0.2282 1
08:00 log return series 0.9795 0.2054 1 0.9783 0.1661 1
09:00 log return series 0.9855 0.6206 1 0.9850 0.5705 1
10:00 log return series 0.9943 0.1116 1 0.9925 0.3357 1
11:00 log return series 0.9920 0.4113 1 0.9910 0.7466 1
12:00 log return series 0.9937 0.1734 1 0.9899 0.9361 1
13:00 log return series 0.9896 0.7960 1 0.9884 0.8454 1
14:00 log return series 0.9869 0.7881 1 0.9890 0.9294 1
15:00 log return series 0.9859 0.6651 1 0.9862 0.5907 1
16:00 log return series 0.9878 0.9091 1 0.9766 0.1141 1
17:00 log return series 0.9922 0.5507 1 0.9757 0.0986 1
18:00 log return series 0.9885 0.9809 1 0.9754 0.0942 1
19:00 log return series 0.9904 0.6701 1 0.9850 0.4898 1
20:00 log return series 0.9852 0.5897 1 0.9832 0.3599 1
21:00 log return series 0.9855 0.5253 1 0.9789 0.1699 1
22:00 log return series 0.9736 0.0686 1 0.9816 0.3085 1
23:00 log return series 0.9877 0.7626 1 0.9896 0.7988 1
24:00 log return series 0.9731 0.0633 1 0.9908 0.7834 1

information available prior to time t
f(B) · P̃rt (d1) = w(B) · L̃rt (d2) + u(B) · at
The general multivariate ARIMA scheme is described as
follows:
(A). Model identification: Use Shapiro–Wilk test and
augmented Dickey–Fuller test to analyse the stationarity of
the data series, and determine proper orders of differences
d1 and d2 to make the underlying process stationary with
more homogeneous mean and variance. After the
underlying series is accepted as being stationary, applying
the autocorrelation function (ACF) and partial
autocorrelation function (PACF) successively to identify the
orders of ARMAX ( p, q, b). The autocorrelation of lag t is
given as (7), where Pr (d1) is the average value of P̃rt (d1)
series
performed to analyse the stationarity of input data sets to
the two alternatives, in which Shapiro–Wilk test [34]
(6) examines the normality and augmented Dickey–Fuller
method [35] performs the unit root stationary test of price
and load data of NYISO from 1 July 2012 to 31 October
2012. Table 1 shows the Shapiro–Wilk test results including
the test statistics and the P-values of original price and load
series, their log return series and their hourly log return
series. The factor of the form (1 − B 24) is applied to all
series for the test. The larger the P-value, the closer the
data set to a normal distribution, and in turn the null
hypothesis of a normal distribution cannot be rejected at a
conventional significance level. The first two rows in
Table 1 report the test statistics and the corresponding
P-values for original price/load series and their log return
series with the first order of differences. It shows that the
null hypothesis of normality of the four data series tests
should be rejected at the 1% significance level, as the
corresponding P-values are all smaller than 0.01. In
T −t   
addition, test statistics for the four data series with any
t=1 P̃rt (d1) − Pr (d1) · P̃r(t+t) (d1) − Pr (d1)
rP,t = T  2
t=1 P̃ rt (d1) − Pr (d1)
(7)
There are two alternatives to build the multivariate ARIMA
model for forecasting the day-ahead electricity price/load
return series. One is to build a single multivariate ARIMA
model based on the entire series, and consider a 24-step
forecast for the next day. The other is to consider individual
hourly models. That is, dividing the entire series into 24
sets corresponding to different hours of a day, building 24
multivariate ARIMA models based on different hourly
series and forecasting a one step ahead for each multivariate
ARIMA model. The forecast results of the 24 multivariate
ARIMA models constitute the final day-ahead forecast.
Shapiro–Wilk test and augmented Dickey–Fuller test are
IET Gener. Transm. Distrib., 2014, Vol. 8, Iss. 12, pp. 1937–1950
doi: 10.1049/iet-gtd.2013.0927
orders of differences < 100 would all reject the null
hypothesis of normality. On the other hand, for hourly price
and load log return series, they all pass the Shapiro–Wilk
test with respect to certain orders of differences. Thus,
hourly-based price and load series would be closer to a
normal distribution than the entire data series. Furthermore,
the identified normally distributed hourly price and load log
return series are further applied towards the unit root test
via the augmented Dickey–Fuller method. When a time
series has a unit root, the series is non-stationary and the
ordinary least squares (OLS) estimator is not normally
distributed. Table 2 shows the augmented Dickey–Fuller
test results, including the test statistics and the
corresponding critical values of hourly price and load log
return series with certain orders of differences identified via
the Shapiro–Wilk test in Table 1. The more negative the
test statistic value, the more stationary the time series. Most
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Table 2 Augmented Dickey–Fuller test for unit root of price and load data sets of NYISO from 1 July 2012 to 31 October 2012
Price data Load data

Test statistic Critical value Order of differences Test statistic Critical value Order of differences

01:00 log return series −3.513 −3.439 (1%) 1 −4.794 −4.469 (1%) 1
02:00 log return series −3.642 −3.439 (1%) 1 −4.762 −4.469 (1%) 1
03:00 log return series −3.332 −2.602 (1%) 2 −4.817 −4.469 (1%) 1
04:00 log return series −2.731 −2.602 (1%) 4 −3.496 −3.439 (1%) 1
05:00 log return series −2.842 −2.602 (1%) 4 −3.554 −3.439 (1%) 1
06:00 log return series −2.571 −1.942 (5%) 7 −3.466 −3.439 (1%) 2
07:00 log return series −3.778 −2.602 (1%) 2 −4.020 −3.439 (1%) 2
08:00 log return series −4.293 −3.439 (1%) 2 −4.084 −3.439 (1%) 1
09:00 log return series −3.684 −3.439 (1%) 1 −4.366 −3.439 (1%) 1
10:00 log return series −3.734 −3.439 (1%) 1 −4.768 −3.439 (1%) 1
11:00 log return series −3.439 −3.439 (1%) 2 −4.185 −3.439 (1%) 1
12:00 log return series −3.088 −2.602 (1%) 1 −3.918 −3.439 (1%) 1
13:00 log return series −2.838 −2.602 (1%) 1 −3.797 −3.439 (1%) 1
14:00 log return series −3.130 −2.602 (1%) 1 −3.777 −3.439 (1%) 1
15:00 log return series −2.966 −2.602 (1%) 1 −3.821 −3.439 (1%) 1
16:00 log return series −3.512 −3.439 (1%) 2 −3.993 −3.439 (1%) 1
17:00 log return series −3.652 −3.439 (1%) 1 −4.258 −3.439 (1%) 1
18:00 log return series −1.878 −1.595 (10%) 2 −4.011 −3.439 (1%) 1
19:00 log return series −2.625 −2.602 (1%) 2 −3.997 −3.439 (1%) 1
20:00 log return series −2.674 −2.602 (1%) 2 −4.696 −4.469 (1%) 2
21:00 log return series −2.788 −2.602 (1%) 1 −2.756 −2.602 (1%) 1
22:00 log return series −2.575 −1.942 (5%) 2 −2.566 −1.942 (5%) 1
23:00 log return series −2.465 −1.942 (5%) 2 −2.873 −2.602 (1%) 1
24:00 log return series −2.481 −1.942 (5%) 2 −4.691 −4.469 (1%) 1

of the test statistic values are smaller than the corresponding smaller than the 95% confidence bound, there is no
1% critical values with the same orders of differences significant autocorrelation at that lag. After the first-order
identified in Table 1, which indicate that the null hypothesis difference (which is carried out in the return series), the
of unit root non-stationary should be rejected at the 1% ACF dies out quickly after lag 2 with a damping half-cycle
significance level. Null hypothesis of unit root sine wave; so the price series may follow the process with
non-stationary is rejected at the 1% significance level for d1 = 1, which is the one-period return series as defined in
price log return series at hours 7, 8, 16, 19 and 20 and for (3). Fig. 9 shows the ACF of return series for the first hour
load log return series at hours 6, 7 and 20, with one order of each day in the NYSIO market from 1 July 2012 to 31
of differences higher than those identified in Table 1. In October 2012. Comparing Fig. 9 with Fig. 8, it shows that
addition, price log return series at hours 6, 18 and 22–24
and load log return series at hour 2 have slightly poorer
stationary performance. Null hypothesis of unit root
non-stationary is rejected at the 5% significance level for
price log return series at hours 6 and 22–24 and for load
log return series at hour 2. Null hypothesis of unit root
non-stationary is rejected at the 10% significance level for
price log return series at hour 18.
The stationary property implies that zeros of f(B) and j(B)
lie outside the unit circle, which means that the ACF will die
out quickly and rather linearly. Figs. 7 and 8 show the ACF of
price series and price return series from 1 July 2012 to
October 31 2012 in the NYISO market, respectively. Fig. 8 ACF of price return series of NYISO from 1 July 2012 to
Dashed lines indicate the approximate upper and lower 95% 31 October 2012
confidence bounds. That is, if the ACF at a certain lag is

Fig. 7 ACF of price series of NYISO from 1 July 2012 to Fig. 9 ACF of price return series for the daily hour 01:00 from
31 October 2012 1 July 2012 to 31 October 2012

1942 IET Gener. Transm. Distrib., 2014, Vol. 8, Iss. 12, pp. 1937–1950
& The Institution of Engineering and Technology 2014 doi: 10.1049/iet-gtd.2013.0927

the return series ACF of the same-hour dies out more quickly
than the return series of the entire day. In summary, the
hourly-based series with certain orders of differences
presents stationary, which presents a more homogeneous
mean and variance and can be better fitted in the
multivariate ARIMA model with proper AR and MA
orders. ( p, q, b) orders are determined by lags where ACF
and PACF die out. Thus, we consider 24 different hourly
multivariate ARIMA models instead of a single multivariate
ARIMA model for the entire series.
(B). Parameter estimation: After identifying a tentative
model, the next step is to estimate the model parameters.
The OLS estimation is used to efficiently make inferences
about parameters conditional on the adequacy of the model.
(C). Diagnostic checking: Once parameters are estimated, we
check the model adequacy for representing the series, which
is intended to reveal model inadequacies and consider
improvements. One technique that can be used for
diagnostic checking is overfitting, that is, fitting a more
comprehensive model to learn whether the additions are
needed. The other is the diagnostic check applied to
residuals to see whether they satisfy the requirements of a
white noise process. That is, whether the residuals hold zero
mean, constant variance, and whether there are any
autocorrelations or partial autocorrelations among residuals.
If the current model is inadequate, we return to step one
and repeat the iterative procedure.
In summary, the time series model building is an
iterative procedure. It starts with model identification and
parameter estimation, followed by diagnostic checking
which is used to analyse the model adequacy. The
iterative procedure for model building is repeated until a
satisfactory model is obtained. One issue is that the fit of
a regression model to the new data is nearly always
worse than its fit to the original data. In this paper, the
task is accomplished by separating the series into two
disjoint sets, with the first portion of the data for
constructing the model and the remaining portion for
evaluating the forecasting capability.
2.3 GARCH – conditional heteroscedastic model
As demonstrated in Figs. 3–6, both price/load signals and
their return series present non-constant deviations over time.
Under this circumstance, the estimator of multivariate
ARIMA model coefficients may not be asymptotically
unbiased and consistent, and error terms are autocorrelated.
Thus, the residual analysis is an important step in the
regression analysis. The GARCH model is a widespread
tool for dealing with series conditional standard deviations
(SDs) [36]. A GARCH ( p, q) is modelled as (8) and (9),
where νt is a Gaussian N(0, 1) white noise process, ht = Var
(εt|εt−1) represents the conditional variance of time t based
on time (t − 1), and c is the constant item in the GARCH
model. The input series εt considers the residual of the
multivariate ARIMA model, that is, actual price/load
signals minus the forecasts offered by the multivariate
ARIMA process. After combining the results of multivariate
ARIMA and GARCH models, forecast results would
incorporate the possibility of non-constant error variance.
The application of GARCH model is an iterative procedure
that is similar to the multivariate ARIMA model, which
includes iteratively order determination, parameter
IET Gener. Transm. Distrib., 2014, Vol. 8, Iss. 12, pp. 1937–1950
doi: 10.1049/iet-gtd.2013.0927
www.ietdl.org
estimation, and model diagnostic checking [37]


p

q
ht = c + ai · ht−i + bi · (1t−i )2 (8)
i=1 i=1
12t = n2t · h2t (9)
2.4 Adaptive wavelet neural network (AWNN)
Considering a non-linear and non-stationary correlation
between price and load signals does help improve
predictions based on time series techniques. In this paper,
AWNN shown in Fig. 10 is used to estimate the non-linear
relationship between electricity prices and system loads.
AWNN introduces wavelets as activation functions of
hidden neurons in the traditional feed-forward neural
networks. Unknown parameters of AWNN include weights
and dilation/translation factors which can be learned by
gradient-type algorithms. The success of this configuration
dwells on the fact that the wavelet network has universal
and L 2 approximation properties and is a consistent
function estimator [38, 39].
The output of AWNN is computed as (10), where the
multi-dimensional wavelet function f ( ) is calculated by the
tensor product of one-dimensional wavelets or some radial
functions, aij and bij are translation and dilation parameters,
e is the bias of the output node in AWNN, m and n are the
numbers of input layer and hidden nodes of AWNN and
Wi, Wj, Wij are the weights of AWNN. The Morlet wavelet
shown in (11) is used as the mother wavelet, and other
wavelet functions are dilations and translations derived from
this prototype mother wavelet. We compared two most
popular mother wavelets given in the literature
with numerical tests: Morlet and Mexican Hat. We found
that Morlet always gives a better forecast solution.
Since dilation parameters a1j, …, amj in (10) are already
included for each input, the usage of 1.75 in (11) is an
arbitrary coefficient which will not impact the forecasting
accuracy. Multi-dimensional wavelet function is
calculated by the tensor product in (12) and the radial
function in (13).
In the training process, the network learns and adjusts
weights as well as translation and dilation parameters by
using the product of gradient and learning rate. Two
parameters, that is, learning rate and momentum, are
adjusted for accelerating the learning process [37]. The
Fig. 10 AWNN model
1943
& The Institution of Engineering and Technology 2014
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learning rate controls the step size for minimising the
objective function. The momentum term is calculated by
averaging the changes and determining the proportion of
past changes that should be used for new values. Thereby,
the term ensures that the search path on the average is in
the downhill direction
 


n
W1j · x1 − b1j Wmj · xm − bmj
y= Wj · f , ...,
a1j amj
j=1


m case for AWNN. Two AWNN models are used for weekday
+ Wi · xi + e
i=1
 one output. For weekday price/load forecasts at hour t on
f (x) = cos (1.75x) · exp −x2 /2
One of the critical issues in network training is overfitting, in
which the network memorises training patterns and
consequently loses certain ability to generalise. That is, it
fits the training set but cannot well predict the fit for new
data sets. In the training process, there is a point at which
the training error continues to decrease whereas the
generalisation error starts to increase. The training process
should stop at this point to avoid further overfitting.
Accordingly, in order to detect overfitting, the original data
set is divided into three disjoint sets, that is, training set,
validation set, and generalisation set. The training set is
used to train the network model, the validation set is used
to estimate the generalisation error, and the generalisation
set is for forecasting.
In this paper, two indicators are considered for detecting
the point of overfitting. One is to check whether the mean
squared error (MSE) in iteration m exceeds the average
MSE plus its SD as expressed in (14) and (15), where
MSEm V is the mMSE on validation set till iteration m for
AWNN, MSEV is the average MSE on validation set till
iteration m for AWNN, and sm V is the STD of MSE on
validation set till iteration k for AWNN. MSE implies an
underlying quadratic loss function for which the conditional
mean is the best, that is, it is the minimum MSE forecast.
The other is to measure the generalisation factor given in
(16), where MSEm T is the MSE on testing set at iteration m
for AWNN and γm is the generalisation factor of iteration m
for AWNN. Overfitting is detected at the training iteration
m when gm . xm g with xg given in (17), where g is the
m m
m
V . MSEV + sV
MSEm m
(15)
gm = MSEmV /MSEmT (16)
 
xmg = min xm−1
g , g + sg , 1.0
m m
(17)
Multivariate ARIMA and GARCH consider different
forecasting models at different hours. However, it is not the
(10) and weekend forecasts, respectively. Both AWNNs for
NYISO price forecast studies contain 16 hidden nodes and
(11) day D, the AWNN input structure includes 10 input data,
which are forecast loads/prices at hours (t − 2), (t − 1), t and
(t + 1) on day D from the previous iteration, historical
prices/loads at hour t on days (D − 1) and (D − 2), and
forecast prices/loads at (t − 3), (t − 2), (t − 1) and t based on
the forecast results from ARIMA&GARCH models in the
current iteration. For weekend price/load forecasts at hour t
on day D, the AWNN input structure includes 16 input
data, which are forecast loads/prices at hours (t − 2), (t − 1),
t and (t + 1) on day D from the previous iteration, historical
prices/loads at hour t, (t + 1), (t + 2) and (t + 3) on day (D −
1), historical prices/loads at hour (t − 3), (t − 2), (t − 1) and
t on day (D − 2), and forecast prices/loads at (t − 3), (t − 2),
(t − 1) and t based on the forecast results obtained from
ARIMA&GARCH models in the current iteration. The
selection of input features and the number of hidden nodes
are determined based on the forecasting experience in the
NYISO market, which are all system specific. The
utilisation and analysis of large data sets often represent a
complex forecasting task. The process of feature selection is
regarded as a reduction in dimensionality by choosing a
subset of variables as features that are more relevant than
others. The dimensionality can be reduced by using
statistical-based and artificial intelligence algorithms such as
principal component analysis, factor analysis, feature
clustering and so on [30, 31]. It is likely that statistically
less important components arise from noise and are not
relevant to the intrinsic nature of the data.
2.5 Assessment of forecasting

average generalisation factor until iteration m for the Several measurements are used to examine the accuracy of
AWNN model and sm forecast results. The mean absolute percentage error
g is the STD of generalisation factor
until iteration k for AWNN. This test always ensures that (MAPE) index in (18) and (19) evaluates the performance
γm ≤ 1 before overfitting occurs and the validation error is of forecast results. MAPE represents the absolute average
smaller than the testing error [39] prediction error between predictions and actual targets
 
1
T  1
T  
P̃ − Pk /Pk
MSE = P t − Pt 2 (14)
k
MAPEP = · t t t · 100% (18)
T t=1 T t=1

    ⎧   ⎫

f
W1j · x1 − b1j
a1j
, ...,
Wmj · xm − bmj
amj
=
i=1

m
cos 1.75 ·
Wij · xi − bij
aij
⎨ W ·x −b 2
· exp −
⎩
ij i
aij
ij
/ 2
⎬
⎭
(12)

  ⎛ 
 ⎞ ⎛ ⎞
 m   2
f
W1j · x1 − b1j
a1j
, ...,
Wmj · xm − bmj
amj
= cos⎝1.75

W · x − b 2

i=1
ij i
aij
ij ⎠ · exp⎝−

m

i=1
Wij · xi − bij
aij
/2⎠ (13)

1944 IET Gener. Transm. Distrib., 2014, Vol. 8, Iss. 12, pp. 1937–1950
& The Institution of Engineering and Technology 2014 doi: 10.1049/iet-gtd.2013.0927
 www.ietdl.org
  model with only historical load data up to the day before
k 1
T  
L̃ − Lk /Lk day D, and day-ahead price is forecasted using the proposed
MAPEL = · t t t · 100% (19) hybrid model with only historical price data up to the day
T t=1
before day D.
Case 2: Integrated day-ahead price and load forecasting for
If the actual value is small, (18) and (19) will contribute large the week of 1–7 November 2012 using the proposed
terms to MAPE even if the difference between actual and two-stage forecasting framework, with historical load and
forecast values is small. In addition, if the forecast value is price data up to the day before day D.
small and actual value is large, the absolute percentage
error will be close to 100% [40]. In order to avoid the
adverse effect of very small prices, AMAPE defined in (20) Case 1: Figs. 11 and 12 show the price and load forecast
and (21) is adopted results for 1–7 November 2012 in Case 1, which are
     obtained by separated price and load hybrid forecast
1

/ 1

T   T models. It is observed that most prediction errors happen in
k
AMAPEP = · P̃ − Pk  · Pk · 100% the morning/evening peaks and earlier morning off-peaks.
t t
T t=1
T t=1 t Table 3 reports the daily AMAPE of price and load
(20) forecasts in Case 1. The second and the third columns show
     the daily AMAPE of separated price and load forecasts
1

/ 1

T   T using the proposed hybrid model. The largest daily
AMAPEL =
k
· L̃ − Lk  · Lk · 100% AMAPE of price forecast happens on 7 November 2012,
t t
T T t=1 t
t=1 which is mainly caused by the price drop in evening peaks
(21) on that day. The peak price is 41.68 $/MWh at 20:00 on 7
November 2012 as compared to 51.57 $/MWh at 20:00 on
By using a single model or a combination of models to predict 6 November 2012, which shows a 19.18% decrease. The
the future, it is implicitly assumed that there is a true model largest daily AMAPE of load forecast happens on 6
for a given series. However, the assumption is rarely November 2012, which is mainly caused by the load drop
accurate. Even if it is true, there is no guarantee that it will in morning peaks of that day. The peak load is 1258.9 MW
be selected as the best fit to the data. Thus, the impact of at 12:00 on 6 November 2012 as compared to 1377.7 MW
model uncertainty on forecasts needs to be measured [40]. at 12:00 on 5 November 2012, which shows an 8.62%
In this paper, the variance of forecast errors (22) and (23) is decrease. It is also observed that daily load and price
used to measure mode uncertainty. The smaller the forecast performances are not consistent with each other
variance, the less uncertain is the model or more reliable is when using separated price and load forecast models. That
the forecast result is, although in most days load forecast has a better
performance than price forecast in terms of smaller
   2 AMAPEs, the exception is on 6 November 2012, in which
 2 1
 
/ 1

T T
skPE = · P̃ − Pk  · Pk
k
− AMAPEP the AMAPE of load forecast is 6.24%, which is higher than
t t
T t=1 T t=1 t 5.17% of the AMAPE of price forecast. The major reason
for the inconsistent performance is that separated price and
(22)
load forecast models do not consider their correlation. That
   2 is, load forecast models only take historical load data as
 k 2 1
 
/ 1

T T
sLE = · L̃ − Lk  · Lk − MAPEL
k
t t
T t=1 T t=1 t
(23)

3 Case study
The proposed two-stage integrated forecasting framework is
applied to predict electricity prices and loads for the
NYISO market [29]. Currently, the NYISO provides two
types of price-based DR programs, including the day-ahead
Fig. 11 Actual and forecast prices for 1–7 November 2012 in
DR program and the demand-side ancillary service
Case 1
program, in which DR resources will participate through
DR biddings [29]. Thus, it is reasonable to assume that
historical price and load data at the NYISO market do
contain price-sensitive load information and thus are
suitable for the proposed study. The proposed forecasting
framework is trained using the data set from 1 July 2012 to
17 October 2012, is validated using the data set from 18
October 2012 to 31 October 2012, and is tested for the
week of 1–7 November 2012. The following two cases are
studied:

Case 1: Separated day-ahead price and load forecasting is

considered for the week of 1–7 November 2012. That is, Fig. 12 Actual and forecast loads for 1–7 November 2012 in
day-ahead load is forecasted using the proposed hybrid Case 1

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www.ietdl.org
Table 3 Daily load and price forecast analysis in Case 1
Day in 2012 Proposed hybrid model ARIMA model AWNN model ARIMA + AWNN model

Load forecast Price forecast Load forecast Price forecast Load forecast Price forecast Load forecast Price forecast
AMAPE AMAPE AMAPE AMAPE AMAPE AMAPE AMAPE AMAPE

1 November 1.17% 4.60% 1.40% 5.75% 1.25% 5.08% 1.20% 4.87%

2 November 1.51% 3.73% 1.71% 5.19% 1.73% 4.52% 1.59% 4.12%
3 November 1.06% 4.71% 1.54% 6.96% 1.56% 5.63% 1.23% 5.18%
4 November 2.91% 4.93% 3.08% 5.73% 3.05% 5.36% 2.97% 5.14%
5 November 3.57% 5.48% 3.94% 6.39% 3.75% 6.13% 3.68% 5.87%
6 November 6.24% 5.17% 6.53% 5.51% 6.48% 5.37% 6.34% 5.31%
7 November 3.28% 10.34% 3.64% 11.76% 3.52% 10.82% 3.40% 10.61%
Weekly 2.82% 5.57% 3.12% 6.76% 3.05% 6.13% 2.92% 5.87%
average

inputs, and price forecast models only take historical price

data as inputs.
Table 3 also compares the daily AMAPE of separated price
and load forecasts using the proposed method while
excluding a subset of components. Three alternatives are
studies. The first one uses ARIMA only, and both GARCH
and AWNN are bypassed. The second one uses AWNN
only, and both ARIMA and GARCH are bypassed. The
third one uses both ARIMA and AWNN, and GARCH is
bypassed. Better results are obtained with the proposed
Fig. 14 ACF of squared price forecast residual from ARIMA of
hybrid model as compared to the other three alternatives, in
NYISO from 1 July 2012 to 31 October 2012 in Case 1
terms of smaller daily AMAPE of both price and load
forecasts for all seven days. Thus, the behaviour of the
proposed hybrid technique is superior to the other threes. In and residuals are uncorrelated. Fig. 14 shows that the
addition, although in most days the AWNN model performs variance process exhibits some correlation. This indicates
better than the ARIMA model for both price and load the possibility that the variance process may be close to
forecasts, ARIMA derives slightly better load forecast being non-stationary and a GARCH would be suitable to
results than AWNN on 2 and 3 November (i.e. 1.71% and address the issue.
1.54% against 1.73% and 1.56%). The reason is that these In addition, Table 4 further compares the price forecast
two days have very similar load profiles as compared to the results of the four models on 7 November. Better forecast
same days in previous weeks. Under this situation, ARIMA
may better catch the relationship, whereas AWNN may
induce additional errors because of overfitting and/or
generalisation. Furthermore, the third model which Table 4 Price forecast analysis on 7 November in Case 1
combines ARIMA and AWNN always performs better than
their individual models. Since both price series and return Hour Actual Proposed ARIMA AWNN ARIMA +
price hybrid model model AWNN
series present non-constant deviations over time as model model
demonstrated in Figs. 3–6, the OLS estimator of ARIMA
model coefficients is no longer asymptotically unbiased and 1 28.78 29.16 29.71 29.33 29.19
consistent. That is, the error term which is the real value 2 24.46 26.79 26.80 26.92 27.21
minus the forecasted value from ARIMA may not have zero 3 22.91 24.16 24.17 24.38 25.54
4 22.67 23.79 23.91 23.83 23.79
mean and/or constant variance. Figs. 13 and 14 show the 5 23.65 25.12 25.58 25.37 25.49
ACF of price forecast residuals of the ARIMA model (i.e. 6 26.09 29.46 30.07 29.70 29.64
the actual price minus the forecasted price from ARIMA) 7 33.85 35.90 36.58 36.02 35.63
and the ACF of squared residuals for the forecast week of 8 34.98 37.87 37.92 37.93 38.02
1–7 November 2012. Fig. 13 indicates that most values are 9 36.33 38.45 39.02 38.63 38.48
10 37.33 38.63 38.66 38.66 38.69
within 95% confidence interval of the Gaussian white noise, 11 37.86 40.72 40.74 40.73 40.72
12 38.41 41.48 42.92 41.92 41.52
13 37.54 41.45 41.51 41.47 41.46
14 37.34 40.43 40.47 40.26 39.83
15 37.05 40.97 41.43 40.73 39.70
16 36.49 39.79 39.91 39.86 39.91
17 36.64 40.46 40.75 40.55 40.46
18 37.82 43.69 43.93 43.79 43.77
19 41.44 50.60 52.35 51.26 51.05
20 41.68 48.66 49.25 48.96 49.07
21 39.12 43.55 43.59 43.68 43.94
22 34.32 40.10 41.20 40.46 40.21
23 31.07 37.10 38.54 37.50 37.00
24 29.67 32.68 33.44 32.95 32.82
Daily – 10.34% 11.76% 10.82% 10.61%
Fig. 13 ACF of price forecast residual from ARIMA of NYISO AMAPE
from 1 July 2012 to 31 October 2012 in Case 1

1946 IET Gener. Transm. Distrib., 2014, Vol. 8, Iss. 12, pp. 1937–1950
& The Institution of Engineering and Technology 2014 doi: 10.1049/iet-gtd.2013.0927
 www.ietdl.org
Table 5 Modified DM statistics test on daily price forecast in Case 1 (DM statistics/P-value)
Forecast error of the first method against forecast error of the second method

Second method First method

Proposed hybrid model ARIMA model AWNN model ARIMA + AWNN model

Proposed hybrid model – −5.4897/0.0001 −4.0800/0.0001 −2.5940/0.0103

ARIMA model 5.4897/0.0001 – 5.4353/0.0001 5.8923/0.0001
AWNN model 4.0800/0.0001 −5.4353/0.0001 – 4.6460/0.0001
ARIMA + AWNN model 2.5940/0.0103 −5.8923/0.0001 −4.6460/0.0001 –

Table 6 Modified DM statistics test on daily load forecast in Case 1 (DM statistics/P-value)
Forecast error of the first method against forecast error of the second method

Second method First method

Proposed hybrid model ARIMA model AWNN model ARIMA + AWNN model

proposed hybrid model – −9.2182/0.0001 −7.3972/0.0001 −8.2496/0.0001

ARIMA model 9.2182/0.0001 – 5.0853/0.0001 9.2794/0.0001
AWNN model 7.3972/0.0001 −5.0853/0.0001 – 6.3065/0.0001
ARIMA + AWNN model 8.2496/0.0103 −9.2794/0.0001 −6.3065/0.0001 –

results are obtained at most hours with the proposed hybrid
model. The best price forecast result of the proposed hybrid
model over the ARIMA occurs at hour 23 with the actual
price of 31.07 $/MWh, which is 37.10 $/MWh as compared
to 38.54 $/MWh. The best price forecast result of the
proposed hybrid model over the AWNN occurs at hour 19
with the actual price of 41.44 $/MWh, which is 50.60
$/MWh as compared to 51.26 $/MWh. The best price
forecast result of the proposed hybrid model over the
ARIMA + AWNN occurs at hour 3 with the actual price of
22.91 $/MWh, which is 24.16 $/MWh as compared to
25.54 $/MWh. It also indicates that the three alternative
models do not provide consistent price forecast results at
different hours. In addition, the forecast results with the
ARIMA + AWNN model are slightly worse than individual
ARIMA and/or AWNN models at hours 2, 3, 8, 9, 10 and
16. On the other hand, the forecast results with the
proposed hybrid method are slightly worse at hours 14, 15
and 23. These situations are mainly caused by the
uncertainty when using ARIAM or ARIMA + GARCH
results as input to AWNN. In summary, the final daily
AMAPE of the proposed model is improved by about
13.73% (i.e. (11.76% − 10.34%)/10.34%), 4.64% (i.e.
(10.82% − 10.34%)/10.34%), and 2.61% (i.e. (10.61% −
10.34%)/10.34%), as compared to ARIMA, AWNN and
ARIMA + AWNN, respectively.
The forecasting performance of the four models is further
compared via the modified Diebold–Mariano (DM) static
method [41–43] for evaluating the statistical significance of
price and load forecast results. Tables 5 and 6 show the
DM statistics and the corresponding P-values when
comparing the four forecasting models for daily price and
load forecasts. Negative DM statistics indicate that the null
hypothesis of equal forecasting performance will be rejected
at a significance level on the left side, and the first method
has lower forecasting errors on average than the second
method. In addition, the smaller the P-value, the better the
performance of the first method over the second method.
Table 5 shows that comparing price forecast results of
the proposed hybrid model with ARIMA, AWNN and
ARIMA + AWNN models, the proposed method
outperforms the other three because the P-values are
significantly less than 5% significance level. Similarly, it
can be observed that the AIRMA + AWNN model
outperforms the other two models as the P-values are
significantly less than 5% significance level as shown in the
last row, and the ARIMA model has the worst performance
as shown in the fourth row. The similar trend is also
observed for the daily load forecast, as shown in Table 6.
In addition, comparing Tables 5 and 6, it shows that the
P-value of the proposed hybrid model against the ARIMA
+ AWNN model for the load forecast is much smaller than
that of the price forecast (i.e. 0.0001 against 0.0103), which
indicates that the proposed hybrid model has more
significant improvement than the ARIMA + AWNN model
when applied for the daily load forecast.
Case 2: Figs. 15 and 16 show the price and load forecast
results for 1–7 November 2012 in Case 2, which are
obtained by the proposed two-stage integrated day-ahead
price and load forecasting framework. As compared to Case
1, price and load forecasts obtained from the proposed
integrated forecast framework follow the trend of actual
prices and loads. As highlighted in grey cycles in Figs. 15
and 16, the price/load prediction in the proposed method
outperforms that in Case 1 by capturing actual morning and
evening peak prices/loads more closely in most days. This
Fig. 15 Actual and forecast prices for 1–7 November 2012 in
Case 2

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www.ietdl.org
Fig. 16 Actual and forecast loads for 1–7 November 2012 in
Case 2
is essential for designing bidding strategies of market
participants and secure operation strategies of system
operators. In certain days, evening peak price/load forecasts
and those in earlier morning off-peaks get slightly worse, as
highlighted in black cycles in Figs. 15 and 16.
Table 7 reports daily AMAPEs of price and load forecasts
in Case 2. A lower AMAPE indicates that results are more
accurate. In Table 7, the improvement is calculated as:
(AMAPE in Case 1–AMAPE in Case 2)/AMAPE in Case
1. Table 7 shows that the proposed integrated forecasting
framework which considers interactions between price and
load series may improve daily price/load forecasts in most
days. The largest load forecast improvement happens on 3
November 2012, in which the load forecast AMAPE is
decreased from 1.06% to 0.63% with a 40.57%
improvement. The largest price forecast improvement
happens on 2 November 2012, in which the price forecast
AMAPE is decreased from 3.73% to 2.58% with a 30.83%
improvement. One major reason of the improvement is that
price and load series are highly correlated. In Case 2, by
applying the statistical significance test on price and load
forecast results using the modified DM static method [41–
43], the DM Statistic and the P-value of the proposed
two-stage integrated price and load forecasting results as
compared to separated price and load forecasting results in
Case 1 are −1.9859 and 0.0487 for price forecast, and
−5.0213 and 0.0001 for load forecast, respectively. Thus,
the proposed two-stage integrated day-ahead price and load
forecasting framework outperforms separated day-ahead
price and load forecasting as the P-values are less than 5%
significance level.
Table 8 shows the correlation coefficients of actual daily
price and load series for 1–7 November 2012. Thus, the
proposed two-stage integrated forecasting framework would
improve the price and load forecast accuracy when
considering price/load interactions in forecasts. On the other
hand, price forecasts on 1 and 4 November 2012 are
slightly worse in Case 2. The load forecast AMAPE is
increased from 4.60% to 4.94% with a 7.39% degradation
on 1 November, and from 4.93% to 5.02% with a 1.83%
degradation on 4 November. It is also observed that the
integrated forecasting framework reduces the largest daily
price forecast AMAPE on 7 November 2012 from 10.34%
to 9.98% with a 3.58% improvement, and the largest daily
load forecast AMAPE on 6 November 2012 from 6.24% to
5.24% with a 16.03% improvement. In addition, although
the load forecast AMAPE is still larger than that of the
price forecast on 6 November 2012, the difference is 0.69%
(i.e. 5.24% − 4.55%) in Case 2 as compared to 1.07% in
Case 1 (i.e. 6.24% − 5.17%), with a 35.51% improvement
(i.e. (1.07% − 0.69%)/1.07%). That is, considering
interactions of price and load series in price/load forecasts
may reduce the AMAPE difference and improve the
performance consistency between price and load forecasts
in a single day. Furthermore, the weekly AMAPEs of price
and load forecasts in Case 2 are decreased from 5.57% and
2.82% in Case 1 to 5.12% and 2.32% with about 8.08%
(i.e. (5.57% − 5.12%)/5.57%) and 17.88% (i.e. (2.82% −
2.32%)/2.82%) improvements. The results show that the
proposed two-stage integrated forecast framework
considering price/load interactions would improve the
forecast accuracy.
The last column in Table 7 shows the numbers of iterations
that the proposed integrated forecast framework converges.
The AMAPE thresholds for price and load forecasts
between two successive iterations are both set as 0.00005.
Figs. 17 and 18 show the convergence performance of the
proposed integrated forecast framework on 2 November
2012 (i.e. a weekday) and 4 November 2012 (i.e. a
weekend). Although AMAPEs are not monotonically
decreasing, they die out very quickly and converge in less
than 10 iterations. Thus, the proposed integrated forecast
framework does not significantly increase the computational
burden as compared to those of separated price and load
forecasts in Case 1, and extra iterations at the second stage
are considered to recalculate price/load series using the

Table 7 Daily load and price forecast analysis in Case 2

Day in 2012 Load forecast daily Improvement, Price forecast daily Improvement, Number of
AMAPE, % % AMAPE, % % iterations

1 November 0.95 18.38 4.94 −7.47 8

2 November 1.43 5.34 2.58 30.89 7
3 November 0.63 40.12 4.21 10.65 8
4 November 1.75 39.97 5.02 −1.72 8
5 November 3.16 11.49 4.54 17.12 8
6 November 5.24 15.92 4.55 11.99 7
7 November 3.05 6.90 9.98 3.51 9
weekly average 2.32 19.73 5.12 9.28 –

Table 8 Daily actual load and price correlation coefficients

1 November 2 November 3 November 4 November 5 November 6 November 7 November

0.9602 0.9618 0.9447 0.9223 0.9612 0.9751 0.9209

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& The Institution of Engineering and Technology 2014 doi: 10.1049/iet-gtd.2013.0927
 www.ietdl.org
Table 9 Variances of hourly load and price forecast errors in
Cases 1 and 2

Hour Case 1 Case 2

Load Price Load Price

variance variance variance variance

1 0.000167 0.001995 0.000042 0.000470

2 0.000094 0.000504 0.000086 0.000560
3 0.000133 0.000624 0.000092 0.000466
Fig. 17 Convergence performance on 2 November 2012 in Case 2 4 0.000118 0.000340 0.000127 0.000569
5 0.000185 0.000274 0.000180 0.000663
6 0.000509 0.001066 0.000396 0.001044
7 0.004210 0.001722 0.003860 0.001571
trained hybrid model and updated load/price data from the 8 0.001260 0.001577 0.001138 0.001847
previous iteration. 9 0.000934 0.000419 0.000875 0.001105
Table 9 shows the variances of hourly load and price 10 0.000813 0.000622 0.000885 0.001196
forecast errors for the week of 1–7 November 2012 in 11 0.000920 0.000545 0.001030 0.000505
12 0.001208 0.001022 0.001064 0.001158
Cases 1 and 2 as a measure of the model uncertainty. A 13 0.001308 0.002318 0.001227 0.002380
smaller variance indicates that forecast errors of the same 14 0.001278 0.000930 0.001143 0.002526
hours on different days are more consistent with each other. 15 0.001015 0.001588 0.000877 0.001520
Thus, the model is less uncertain and the forecasts are more 16 0.001281 0.001144 0.000849 0.002168
17 0.001068 0.000844 0.000914 0.000926
reliable. In both cases, the variances for off-peak hours are 18 0.001128 0.002712 0.000898 0.004036
less than those at peak hours. In Case 1, the largest load 19 0.000380 0.009456 0.000270 0.007212
forecast error variance of 0.004210 happens at hour 7, and 20 0.000167 0.005541 0.000175 0.005194
the largest price forecast error variance of 0.009456 21 0.000532 0.001442 0.000329 0.001083
happens at hour 19. In Case 2, the largest load forecast 22 0.000536 0.003817 0.000516 0.001962
23 0.000271 0.003975 0.000415 0.004750
error variance of 0.003860 also happens at hour 7 with a 24 0.000294 0.002995 0.000265 0.001939
8.31% improvement as compared to Case 1, and the largest daily 0.000825 0.001978 0.000736 0.001952
price forecast error variance of 0.007217 also happens at average
hour 19 with a 23.68% improvement as compared to Case 1.
On the other hand, in Case 2, the load forecast error
variances are higher than those in Case 1 at hours 4, 10, 11, memory. The CPU times for the daily integrated load and
20 and 23, and price forecast error variances are higher than price forecast shown in Table 7 are all below 10 min. Thus,
those in Case 1 at hours 2, 4, 5, 8–10, 12–14, 16–18 and the computational efficiency of the proposed two-stage
23 as highlighted in bold. The average variances of hourly integrated price and load forecasting framework makes it a
load and price forecasts in Case 2 are decreased from suitable alternative for daily integrated price and load
0.000825 and 0.001978 in Case 1 to 0.000736 and forecast within a day-ahead electricity market
0.001952 with 10.79% (i.e. (0.000825–0.000736)/0.000825) decision-making framework.
and 1.31% (i.e. (0.001978–0.001952)/0.001978)
improvements. The results show that the proposed
integrated forecast framework with the consideration of 4 Conclusions
price and load correlations would also improve the model
reliability. In addition, in Case 1, the load forecast error Several case studies are considered for the week of 1–7
variance is higher than the corresponding price forecast November 2012 at the NYISO electricity market to test and
error variance at hours 7, 9–12, 14, 16 and 17 as validate the proposed two-stage integrated price and load
highlighted in grey. However, in Case 2, it only happens at forecasting framework. The proposed framework improves
hours 7 and 11. As load signals are usually less volatile the performance of forecast results by capturing the
than price signals, it is expected that load forecast models correlation of price and load signals in smart grid. The use
are less uncertain and their forecast results are more of one-period continuously compounded return series and
reliable. Thus, the integrated forecast framework would also the hybrid model composed of linear and non-linear
improve the performance consistency of price and load relationships of forecasted signals and explanatory variables
forecast models. has an advantage in the modelling non-linearity and
All case studies are implemented in Matlab on an Intel non-stationary price/load signals. The use of AWNN as a
Core i7 2.67-GHz personal computer with 8 GB RAM consistent function estimator and two overfitting detection
indications diminishes the overfitting issue. It is observed
that the proposed integrated forecasting framework
outperforms the separated load and price forecasting models
by offering smaller forecast errors and error variances.
Another advantage of the proposed integrated framework is
that unlike traditional price forecasting methods which
assume the load information is provided on the forecast
day, the proposed model would forecast either price or load
signal without considering a priori information on the other
quantity for the forecast day, which can be better adapted to
real conditions of an electricity market in smart grid.
The proposed two-stage integrated price and load
Fig. 18 Convergence performance on 4 November 2012 in Case 2 forecasting framework is performed in a cascaded way, and

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doi: 10.1049/iet-gtd.2013.0927 & The Institution of Engineering and Technology 2014
www.ietdl.org
using ARIMA and GARCH forecasting results as input to
AWNN may introduce prediction uncertainty. The modified
DM static test shows that forecasting results of the proposed
model are statistically significant than alternatives. The
future work could include exploring the noise variance
introduced by ARIMA and GARCH forecasting results in
the proposed forecasting framework, and deriving
probabilistic prediction intervals to quantify such prediction
uncertainty.
Other explicative variables, such as weather condition,
available ancillary services, power exchanges, and
maintenance outages of generators and transmission lines,
may help improve the short-term forecasting if used
properly, especially when integrated in the AWNN model.
However, such factors may also cause over-fitting or even
deteriorate the accuracy of the forecasting method. The
future work would include adopting feature selection
techniques and identifying other important explicative
variables into the proposed forecasting framework.
5 Acknowledgment
This work was supported in part by the US National Science
Foundation grants ECCS-1102064 and ECCS-1254310.
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