April 24, 2007 Nihat Cubukcu Utilization of Numerical Weather Forecast in Energy Sector

Table of Contents Introduction to Numerical Weather Prediction Weather influence on Energy (Natural Gas) Design of Forecaster- Decision Maker Interface Summary

Numerical Weather Prediction Short-Term Prediction 1-15day Temperature, Precipitation, … Adaptive Prediction High frequency variations Very High Resolution Long-Term Prediction 1-6 months Temperature, Precipitation, … Global Scale Low Frequency Variations Moderate Resolution More Directional Forecast than Magnitude

Weather Impacts on Energy Commodities Weather forecast is an important input to power load forecasts. Energy demand increases with more extreme temperatures. Accurate forecasts can help to save or make money during volatile times.

Weather Impacts on Energy Commodities cont. Power flows in the path of least resistance – greatest demand. Can’t store power, so physical power is traded from hours ahead to day ahead. Power contracts can be used for necessary demands weeks to months in advance. Natural gas also needs to be transported to where demand is. However, it can be stored.

Natural Gas Chart Jun ’05 to Feb ’06 Hurricane Katrina Hurricane Rita December 2005 January 2006

Forecaster-Decision Maker Interface Forecaster Create and maintain a Weather Forecast System Produce hindcast simulations for statistically long period of time Produce real-time weather forecast Perform model output statistics Interpret model output for decision maker Decision Maker Define the event to mitigate Estimate cost of action Estimate loss if no action Integrate weather information in to decision process Determine if action needs to be taken Evaluate the process regularly

Flow of Information Forecast Transformation Statistical Analysis Decision Process Cost-Loss Analysis Observation Fcst Temp Colder than Normal Forecast Skill ROC If: 60% confidence: Action Hit rate > C/L : Action Cost: C Loss: L C/L =0.40 Observed Temp

ROC (Relative Operating Characteristics) Forecaster uses ROC components to compute all vital statistics Decision maker uses ROC components together with the forecast event to better tune his/her decision process

ROC Table for a Binary System VerifiedNot Verified WarningHitsFalse Alarm No WarningMissesCorrect Rejection Forecast Observed

ROC Graphics

Summary Weather forecast should be integral part of load forecasts, storage models, hedging practices, …. It helps to avoid significant losses that may arise from adverse weather conditions Forecast integration into a decision process should be carefully crafted in order to obtain positive results Forecast skill and decision process need to be examined regularly