As demand trading operations expand, accurate short‑term load forecasts will become crucial to marketplace success.
Dr. William M. Smith is the manager, market‑driven load management, at EPRI. During his 16 years at EPRI, he has managed a diverse set of technical activities, including demand‑side planning, power electronics and controls, and industrial partnerships. He can be reached at (650) 855‑2415, or at firstname.lastname@example.org. Dr. Ken Seiden is the vice president of strategic planning and analysis at Quantec LLC. He specializes in applications of economics, statistics, and strategic planning services to infrastructure utilities. He also served as an industry economist for the Bonneville Power Administration, where he evaluated the impacts of alternative wholesale time‑of‑use pricing strategies on sales and public utility behavior.
As market forces increasingly enter electricity markets, demand trading has become more prevalent over the last few years in the United States. The differences between high wholesale market prices for electricity and prices paid by retail customers have created significant economic opportunities. The immediate beneficiaries include sellers of electricity with access to the wholesale market and large electricity customers with a desire-and the ability-to reduce demand. Energy companies can "buy‑back" energy and demand from large customers, using the electricity to avoid high‑priced wholesale purchases. They then share the difference between the high wholesale price and the lower retail rate with participating customers.
The Value of Accurate Forecasting
As demand trading operations expand, accurate short‑term load forecasts (STLF) will become crucial to success in the marketplace. Forecasts will be required to determine the total volume of wholesale electricity purchases that energy retailers expect to need, and the potential load reductions that could result from demand trading. These forecasts will then be used to assist in developing posted price offers, and determine which price‑quantity bids to accept in demand trading markets.
Risk mitigation is the primary value of increased investment in load prediction accuracy. Market buyers typically err on the side of more purchases in the day‑ahead spot market over the hour‑ahead spot market. However, there are some disadvantages associated with day‑ahead spot purchases that limit the benefits of an "all day‑ahead" strategy. There are factors that indicate that hour‑ahead spot market trading that incorporates demand trading provides a better approach: