Forecasting the residual demand function in electricity auctions

In the fast growing literature that addresses the problem of the optimal bidding behaviour of power generation companies that sell energy in electricity auctions it is always assumed that every firm knows the aggregate supply function of its competitors. Since this information is generally not available, real data have to be substituted with forecasts. In this paper we propose two alternative approaches to the problem and apply them to the hourly prediction of the residual demand function of the main Italian generation company.