Isotonic Quantile Regression Averaging for uncertainty quantification of electricity price forecasts

arXiv:2507.15079v2 Announce Type: replace Abstract: Quantifying the uncertainty of forecasting models is essential to assess and mitigate the risks associated with data-driven decisions, especially in volatile domains such as electricity markets. In this paper, we propose a computationally efficient isotonic variant of Quantile Regression Averaging (QRA), called Isotonic Quantile Regression Averaging (iQRA), for generating probabilistic forecasts from ensembles of point forecasts. Building on QRA, we introduce stochastic order constraints as a hyperparameter-free regularization mechanism that reduces computational complexity while maintaining competitive forecast accuracy. We further demonstrate that the same isotonic regularization principle can be applied to the smoothed estimator of QRA. In an extensive forecasting study of two European day-ahead electricity markets, we show that iQRA and its smoothed variant consistently rank among the top state-of-the-art postprocessing methods in terms of reliability and sharpness. It produces well-calibrated prediction intervals, with smoothed iQRA providing superior reliability even when compared against coverage-oriented conformal prediction. We further introduce a battery arbitrage evaluation, showing that the leading probabilistic methods achieve the highest profit per trade and that probabilistic risk control improves the economic value of trading decisions. Isotonic regularization offers a scalable hyperparameter-free variable selection for linear quantile regression, making iQRA attractive for practical decision-support systems in energy markets.