Challenges in Forecasting Electric Load in Deregulated Markets
Podraza, Ernie, The Journal of Business Forecasting
The biggest challenge in forecasting electric load is predicting weather ... generally, there is less error when forecasts are prepared at the aggregate level ... since electricity cannot be stored, the cost of forecast error in electricity business is very high.
Reliant Energy provides energy products and services to approximately 1.9 million customers in the deregulated markets known as ERCOT (Electric Reliability Council of Texas) and PJM Interconnection (Pennsylvania, New Jersey, and Maryland). The customers in the ERCOT market range from residences and small businesses to large commercial, governmental, industrial, and institutional customers in Texas; PJM Interconnection customers are commercial, governmental, and industrial. Reliant Energy is one of the largest independent power producers in the nation with approximately 16,000 megawatts (MW) of power generation capacity from continuing operations or under contract across the United States. It ranked 220 on the 2006 Fortune 500 List.
ERCOT is the organization entrusted to keep electric power flowing to approximately 20 million Texas customers-representing 85 percent of the state's electric load and about 75 percent of the Texas land area. As the Independent System Operator (ISO) for its region, ERCOT manages the scheduling of power on an electric grid consisting of 70,000 MW of active generation capacity and 38,000 miles of transmission lines. ERCOT also manages financial settlements for the hundreds of market participants in Texas's deregulated wholesale bulk power and administers customer switching. As one of 10 regional reliability councils in North America, ERCOT monitors and enforces industry reliability standards for grid and utility operations. ERCOT is a non-profit corporation regulated by the Public Utility Commission of Texas (PUCT) and is subject to oversight by the Texas Legislature. ERCOT's members include retail consumers, investor- and municipal-owned electric utilities, rural electric coops, river authorities, independent generators, power marketers, and retail electric providers.
PJM is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia. Acting neutrally and independently, PJM operates the world's largest competitive wholesale electricity market and ensures the reliability of the largest centrally dispatched grid in the world. PJM's members/customers include power generators, transmission owners, electricity distributors, power marketers, and large consumers. PJM's role as a federally regulated RTO means that it acts independently and impartially in managing the regional transmission system and the wholesale electricity market. PJM serves about 51 million people. The company dispatches 164,634 MW of generating capacity over 56,070 miles of transmission lines.
A forecaster in an electric company in deregulated markets faces a number of challenges; the most important among them are the following.
1. Cannot store electricity
2. Difficult to predict weather
3. Different meter types
4. New or lost contracts
5. Mass market customer switching
6. Market clearing price fluctuations
7. Regulated rules for financial settlement
8. Data problems
CANNOT STORE ELECTRICITY
Unlike many other products, electricity cannot be stored for distribution to customers. This means that we cannot hold inventory as a buffer to cope with errors in forecasts. On the other hand, electricity moves at the speed of light, making it possible to deliver to the customer's doorstep in no time. Because of this, we need to forecast the needs of all the customers every hour, on the hour, on a continuous basis.
Hourly electric forecasts are very important to the supply desk personnel who are either dispatching electricity from the company-owned generators or procuring power with a purchased-power contract with a third-party provider. …