The authors describe an approach for forecasting day-ahead hourly costs for real-time pricing of electricity. Marginal costs have two components, marginal operating costs, and marginal outage costs. The approach for estimating marginal operating costs is a modification of techniques developed for security constrained dispatch. The approach for marginal outage costs involves estimating the economic damages associated with outages as well as the load-related probability that an outage will occur. Data problems and procedures required for model validation are also addressed.
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