Overcoming the key challenges to achieving accurate demand forecasts in competitive energy markets

Abstract

For energy supply companies operating in fully competitive markets, demand forecasting is a key business skill that has an impact on the bottom line. Accurate demand forecasting is motivated by the strong financial incentives for suppliers to balance supply and demand. Energy consumption is influenced by many factors. Over the long-term economic activity, energy conservation effects and competition between fuels all affect the overall size of the market. In the short term demand profiles will also be influenced by many other inter-dependant factors such as the weather, daily, weekly and seasonal patterns, unusual events and national holidays. Furthermore energy markets are becoming increasingly competitive with customers seeking the best deals. All these factors can have an influence on forecasting with both the size and composition of customer portfolios changing rapidly. Successful forecasting requires the ability to be able to deal with poor quality data and to adapt over time to changes in the patterns of customers’ use of energy.