How much confidence do NERC demand forecasts warrant?
Tom Replogle is an associate at ICF Consulting.
Independent consultants must properly estimate peak demand growth if they are to provide clients with reasonable market analysis. Some consultants defer to the North American Electric Reliability Council (NERC) on this matter because NERC bases its projections on utility-specific estimates developed with more information than consultants typically can access. NERC recently rolled out new demand growth forecasts, so the time seems right to explore whether this confidence is justified or misplaced.
Each year NERC provides actual demand for the prior year, along with a 10-year forecast for demand growth. Table 1 presents NERC forecasts for U.S. summer peak demand growth since 1983, and compares them with actual demand growth over the same periods. Table 1 shows that for periods where historical data are available, NERC always has underestimated the U.S. growth rate.
Table 2 compares NERC 5-year projections against actual demand growth. The shorter term allows the comparison of more forecast periods as well as the opportunity to evaluate NERC near-term forecast accuracy. Here, too, NERC underestimated peak demand in every forecast.
A test for bias1 seems appropriate given the apparent tendency of NERC to underestimate peak-demand growth. Figure 1 presents 5-year forecasted and actual growth rates as a scatter plot.