For most things in life, I look forward to go forward. I keep my eyes on the road ahead. I look before I leap. I aim at my target. But this summer while we were on our family vacation, we rented a row boat and it reminded me that rowing a boat is different. When rowing, I face backward to maximize my power going forward. Forecasting electricity is like rowing a boat, we need to look backward to go forward.
Intuitively, we already do this by using regression models. Regression models look backward, find relationships and project them forward. Although too often, we leave the looking to models instead of our own eyes.
Below is annual historical average use for residential customers over an 11-year period. Leaving the forecast to a regression model with HDD, CDD, and some binary variables, the outlook is close to 11,600 kWh/year (blue dashed line) and flat because the model does not include any trend variables.
But, the last three years show dramatic decline in usage and raises the question of whether the forecast should be closer to 11,000 kWh/year (yellow-dashed line).
Instead of leaving the forecast to the model, we should use our own eyes to identify the underlying pattern in the history. Is average use declining?
The only way to answer this question is to weather normalize historic average use removing the impact of weather variation. Weather normalization will answer the question of why 2016 was so low, why 2014 was so high, and what happened in 2012.
After weather normalizing historic average use, we can answer what happened in 2012, 2014, and 2016.
- 2012 was a mild weather year
- 2014 was an extreme weather year
- 2016 was a mild weather year
Additionally, we can see that average usage has consistently declined from 2009 to 2016.
If we assume the trend stops in 2016, the forecast should be close to 11,400 kWh (purple solid line). If we assume the trend continues, the forecast will be close to 11,000 kWh/year in 2020 (purple dashed line).
Weather normalization is an essential part of the forecaster’s work process. The process allows us to look backwards to ensure that we move forward in the right direction.
Hi Mark,
Thank you sharing….wondering… In looking at your last figure, it seems like the increase in per customer energy consumption from 2006 to 2009 is of similar magnitude to the decrease from 2009 to 2016. Energy use up about 1.7%/year in three years just before the great recession while dropping 0.6%/year post recession. Was there a lot of growth in this service territory or something to explain this increase in the first three years?
The change in energy consumption for this utility is similar to the change we see across North America. Residential energy sales dramatically slowed around the recession. For the United States, 2000-2008 non-weather adjusted annual residential sales growth is 0.51% and 2009-2016 is -1.04% based on Energy Information Administration data. The change is due to increasing energy efficiency of electric end-uses and customer response to the economy.
Is there something to explain this utility’s growth prior to 2009? The growth is correlated with the saturation of central air conditioning and electric space heating. Other than these factors, the residential class appears normal.