Probabilistic forecasting of industrial electricity load with regime switching behavior

This paper suggests a novel inhomogeneous Markov switching approach for the probabilistic forecasting of industrial companies' electricity loads, for which the load switches at random times between production and standby regimes. The model that we propose describes the transitions between the regimes using a hidden Markov chain with time varying transition probabilities that depend on calendar variables. We model the demand during the production regime using an autoregressive moving-average (ARMA) process with seasonal patterns, whereas we use a much simpler model for the standby regime in order to reduce the complexity. The maximum likelihood estimation of the parameters is implemented using a differential evolution algorithm. Using the continuous ranked probability score (CRPS) to evaluate the goodness-of-fit of our model for probabilistic forecasting, it is shown that this model often outperforms classical additive time series models, as well as homogeneous Markov switching models. We also propose a simple procedure for classifying load profiles into those with and without regime-switching behaviors. (C) 2017 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.