How Does Sector Coupling Affect Power Price Forecasting Models?

The energy sector is seeing a rapid transition in today’s time. The reason for this stands to be the pressing need for clean and efficient energy systems. Sector coupling stands to be at the forefront of this transition.  It combines the energy sectors of power, cooling & transportation, and heating. Furthermore, this interdependence has significant ramifications for power price forecasting models used to anticipate power prices. This is for those who have hitherto only taken the electrical industry into account. 

Reliable electricity price projections now depend critically on accurately representing the interdependencies and interactions between these connected sectors. The article discusses the evolution of sector coupling and looks at the potential it offers. It also looks at the changes that must be made to maintain effective forecasting in this changing environment.

The Rise of Sector Coupling

Several significant variables have led to an increasing trend of sector coupling in the energy sector in recent years. So, let’s look at them:

The Shift Towards Renewable Energy Sources

Sector coupling has seen a boost due to the global transition toward the sources of renewable energy. This includes wind and solar electricity. Furthermore, there are variations in supply due to the intrinsic intermittent nature of these energy sources. Moreover, the integration of many industries becomes crucial to balance supply and demand. Additionally, it is possible to effectively use renewable electricity integration across several domains by connecting the power sector with others. It includes transportation and heating.

Electrification of Transportation and Heating Sectors

The transport industry is seeing a switch to electrification. This has given a push-to-market coupling. Moreover, the increasing dependence of these industries on electricity necessitates their integration with the power industry. This is for efficient energy management and grid stability.

Emergence of New Energy Carriers

Another factor driving the rise in sector coupling is the development of new energy carriers. This includes hydrogen and synthetic fuels. Furthermore, these carriers can be used in a variety of industries. This includes heating, transportation, and manufacturing. Moreover, they can be generated using renewable power. So, energy systems and power price forecasting models must be approached holistically to facilitate this cross-sector integration.

Adapting Power Price Forecasting Models for Sector Coupling

To effectively capture the impact of sector coupling, power price forecasting models need to undergo significant adaptations and enhancements.

Integrating New Variables and Data Sources

One of the key adaptations required is the integration of new variables and data sources from different energy sectors. This involves expanding the scope of the power price forecasting models to capture interdependencies and interactions between sectors. Additionally, variables that may need incorporation include:

  • Electric vehicle adoption rates, 
  • Charging patterns, 
  • Heating and cooling demand data, 
  • Building characteristics, 
  • Hydrogen production capacities, 
  • Renewable energy generation profiles, 
  • And energy storage deployment and utilization.
Capturing Cross-Sector Interdependencies and Interactions

PPF models must accurately capture the interdependencies and interactions between different energy sectors. Moreover, creating sophisticated modeling methods or frameworks can be necessary to accomplish this. It should be one that can capture the intricate connections and feedback loops across sectors. Furthermore, some considerations need to be looked upon:

  • Impacts of the deployment of heat pumps on sectors like heating and electrical,
  • Transport electrification, 
  • The effects of hydrogen generation through electrolysis on power pricing,
  • And the energy demand.
Advanced Modeling Techniques for Sector Coupling

Advanced modeling strategies are under consideration. This is to meet the increasing complexity brought about by market coupling. These include approaches to:

  • Machine learning and artificial intelligence, 
  • Agent-based modeling, 
  • Hybrid modeling that combines several methodologies, 
  • And integrated modeling frameworks that cover many industries.

Opportunities Presented by Sector Coupling

Sector coupling offers many benefits for the energy industry as well as society at large. So, let’s see them:

Enabling Efficient and Sustainable Energy Systems

The construction of more sustainable and efficient energy systems can be aided by PPF. It should consider market coupling. Furthermore, power price forecasting models can help with demand-side management tactics and efficient renewable electricity integration. Moreover, they can help with the best allocation of resources. This is by capturing the interactions and interdependencies between sectors. So, this can encourage a more sustainable energy transition, lower emissions, and increase energy security.

Optimizing Asset Utilization and Investment Decisions

Energy firms and investors can optimize the utilization of assets. It includes:

  • Power plants, 
  • Energy storage facilities, 
  • Transmission infrastructure, 
  • And sector-specific assets by using dependable power price projections that take sector coupling dynamics into account.

These projections allow for improved risk management techniques. It also assists in the move towards an integrated and sustainable energy environment. As a result, it guarantees profitability and informs investment decisions.

Informing Policymaking and Regulatory Frameworks

Accurate power price forecasting models that account for the effects of sector coupling are beneficial to governments and policymakers. These models shed light on how the integrated energy system is affected by laws, rules, and market structures. So, this makes it possible to make well-informed decisions. It also helps create efficient regulatory frameworks. They are the frameworks that stimulate sector coupling and new technology investment. It also stimulates the creation of a resilient and sustainable energy future.

Challenges Posed by Sector Coupling for Power Price Forecasting Models

Although sector coupling offers advantages, it also poses some difficulties for conventional power price forecasting methods. So, let’s take a look at those challenges:

Data Availability and Quality Challenges

One of the primary challenges is the availability and quality of data required for accurate forecasting with market coupling. Furthermore, significant hurdles are seen with the following:

  • Limited historical data for new technologies, 
  • Siloed data across sectors with separate collection systems, 
  • Inconsistent data quality and granularity, 
  • And the need for real-time or near-real-time data from multiple sectors 
Modeling Complexity and Computational Demands

Incorporating sector coupling increases the overall complexity of power price forecasting models. So, this arises from:

  • Capturing interdependencies between sectors, 
  • Representing cross-sector interactions and feedback loops, 
  • Integrating additional variables and constraints, 
  • And handling new regulations and policies.

The increased complexity may lead to higher computational demands. This is especially true with high-resolution data or advanced modeling techniques.

Capturing Cross-Sector Interdependencies and Interactions

Power price forecasting models with market coupling need to accurately describe interdependencies and interactions between sectors. Furthermore, some important interdependencies are:

  • The impact of heat pump deployment on the electricity and heating sectors,
  • The effect of electric car adoption on electricity demand, 
  • And the consequences of electrolysis-based hydrogen generation on power costs and electricity consumption.

To Sum Up

The energy landscape is changing as a result of sector coupling. With a few challenges, it presents tremendous opportunities. Precise prediction models that consider sector coupling can facilitate sustainable and effective energy systems. It can also maximize asset use and guide the development of resilient energy policies.

The 5th Power Price Forecasting Summit 2024 in Barcelona, Spain on 11-12th June 2024 is a great opportunity to gain more rare insights into Power Price Forecasting models. It brings together industry experts to share knowledge, discuss challenges, and explore cutting-edge solutions. This is through sessions, case studies, group discussions, and more It will also be a great platform to network with other leaders to stay ahead of the curve. So, register right away!