Why do some forecast price spikes end up not happening?

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Many forecast price spikes don't actually end up happening. This may seem odd - but there are a few reasons why this is the case.

You see, it's tempting to think of the wholesale price forecast as being a prediction - like a weather forecast.

But it's actually just a reflection of everything the energy market operator currently knows about supply and demand at a given time.

What it knows about supply is based on current bids from generators. Generators compete to sell their energy on the market at the highest possible price, as part of a reverse auction.

Forecasting the wholesale price

Forecasting the wholesale price is a bit like trying to predict the final price a house on the auction block will sell for based on all the bids so far. The prediction will start off less accurate, and become more accurate over time, as more bids are placed, and more information is available.

Generators will often wait until the last possible minute to put in their most competitive bids. They're all jostling to get the highest possible price for their power.

For example: generators will often place an extremely high bid early in the day (e.g. equivalent to $15/kWh), expecting to lower the bid over time. Even when the bids for a certain period are virtually guaranteed to become more competitive as the period draws closer, the market operator will forecast a price spike as long as those high bids are still in place.

We'll try and tell you when we think a forecast price spike is unlikely

We spend a lot of time watching and analysing the wholesale market here at Amber, and if our resident wholesale experts think a price spike is pretty unlikely to occur we'll let you know in the App.

This prediction is always our best guess, as the outlook can change throughout the day. Weather can be hotter or colder than forecast (causing a spike in demand), there can be less wind or sun than expected, and generators can break down or go offline for maintenance. That's why it's a good idea to check the Amber app for updated guidance in case the situation changes throughout the day.

 

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