GLASSO Model for Electric Load and Wind Power and Monte Carlo Scenario GenerationRen\'e Carmona \& Xinshuo Yang

For the purpose of Monte Carlo scenario generation, we propose a graphical model for the joint distribution of wind power and electricity demand in a given region. To conform with the practice in the electric power industry, we assume that point forecasts are provided exogenously, and concentrate on the modeling of the deviations from these forecasts instead of modeling the actual quantities of interest. We find that the marginal distributions of these deviations can have heavy tails, feature which we need to handle before fitting a graphical Gaussian model to the data. We estimate covariance and precision matrices using an extension of the graphical LASSO procedure which allows us to identify temporal and geographical (conditional) dependencies in the form of separate dependence graphs. We implement our algorithm on data publicly available for the Texas grid as managed by ERCOT, and we confirm that the geographical dependencies identified by the algorithm are consistent with the geographical relative locations of the zones over which the data were collected.