Demand Forecasting for Electricity

Introduction Forecasting demand is both a science and an art. Econometric methods of forecasting, in the context of energy demand forecasting, can be described as ‘the science and art of specification, estimation, testing and evaluation of models of economic processes’ that drive the demand for fuels. The need and relevance of forecasting demand for an electric utility has become a much-discussed issue in the recent past. This has led to the development of various new tools and methods for forecasting in the last two decades. In the past, straightline extrapolations of historical energy consumption trends served well. However, with the onset of inflation and rapidly rising energy prices, emergence of alternative fuels and technologies (in energy supply and end-use), changes in lifestyles, institutional changes etc, it has become imperative to use modeling techniques which capture the effect of factors such as prices, income, population, technology and other economic, demographic, policy and technological variables.