UtiliPoint IssueAlert by D. GM Vasey, Friday 26th October.

Most of us (especially us Brits, it seems) like to talk about the weather. We listen avidly to weather forecasts on the TV or radio and plan our day accordingly, often later cursing when it turns out that the forecast was wrong, as usual! At times, we pay closer attention to the weather forecast when tropical storms or hurricanes are approaching, or if we are planning our vacation. Weather forecasts are a basic feature of modern life that we simply take for granted but utilize in many ways. And so it seems energy companies do, as well.

Weather forecasts play a basic role in managing an energy company in a multitude of ways; from planning maintenance work to building trading strategies. Weather data gets used by departments and functions ranging from planning through finance to operations. Weather forecast data is such an essential and basic tool and yet not much, it seems, is written about the use of weather data in the energy industry, except perhaps in the case of the use of weather derivatives. Given how important weather forecast data is, it is surprising to me that it doesn't get much more focus and attention from the industry in general. How often do we see industry conferences or publications focused on weather forecast data and its uses? It seems that much like you and me, energy companies largely take weather forecasts for granted.

Surveying Weather Use

Against that background UtiliPoint decided to undertake some basic research on weather forecast data in the industry. We created a 'snapshot' survey—that is an electronic questionnaire—that could be sent out to IssueAlert subscribers to get their input and opinions on this topic. The questionnaire went out to subscribers during early October and solicited 81 total responses—quite a lot for a snapshot survey!

The study objective was to broadly understand the use of weather forecasts and weather data at energy companies with a focus on:

* Assessing of the use of on staff meteorologists;
* The types of meteorological data utilized and its relevance;
* Who the users of weather forecasts and weather data are inside an energy company; and,
* An examination of how such services are procured by energy companies.

Of the 81 responses obtained by UtiliPoint to the survey, only 58 responses were used in the analysis. Responses originating from non-energy firms were eliminated, as were any responses which were anonymous and/or deemed to be "suspect,", since UtiliPoint was seeking to accurately reflect how energy companies utilize weather data and weather forecasts. The respondents represent global energy companies including utilities, generators, merchant energy firms, retailers, oil and gas companies and end-users of energy. The actual respondents had a variety of job titles but were mainly middle- to senior-level management representing functions such as operations, trading & risk management, customer service, engineering, planning and forecasting, and load forecasting.

What, Who and Why?

The survey provides some interesting data and analysis regarding the use of weather forecast and weather data by energy companies. What is perhaps surprising is that weather forecast data is very widely used inside energy companies to assist in activities such as financial planning, trading strategy creation, generation dispatch, load forecasting, asset management, customer service and invoice presentment, engineering and maintenance planning, commodity price forecasting, sales and revenue forecasting, emergency response and contingency planning, damage forecasting and a lot more. Given this broad and varied use of weather data, it is perhaps no surprise that the most popular source of weather forecast data primarily remains the National Weather Forecasters. Yet weather forecasting in some ways also resembles a "cottage industry" with a variety of small and local consultants providing a variety of services to a range of energy concerns.

A growing proportion of larger utilities and merchants now employ in-house meteorologists according to the survey. Indeed an inspection of energy job websites shows that meteorologists are in increasing demand in the industry. Most energy companies though rely on National Weather Services primarily supplemented by a variety of commercial weather data providers and small consulting shops. It seems that the basic weather data provided by the National Weather Services is sufficient for many uses but that the commercial providers are used where a more specialist approach or an energy-specific forecast is required.

But what do energy companies actually utilize weather forecast data for? The range of uses reported by the survey respondents is surprisingly broad. While the primary usage indicated by the survey respondents is in load forecasting, other uses included:

* Emergency response and contingency planning in operations and dispatch including transmission and distribution damage forecasting;
* Dispatch and dispatch planning, particularly hydro and wind facilities;
* Storm tracking and alerting;
* Asset management and maintenance planning;
* Development of trading strategies;
* Plant design work;
* Short-term trading;
* Sales and revenue forecasting, financial forecasting (establishment of "normal weather") and energy usage forecasting;
* Natural gas and electric power price forecasts;
* Customer bill estimates;
* Customer bill presentation—average weather

Given the very broad range of users and usage within the energy companies surveyed, it's somewhat surprising that weather forecast data hasn't been an area for greater focus by the industry especially when one considers that the number one attribute of a weather forecast provider is—yes—accuracy.

And who are the primary users of weather forecast and weather data at energy companies? Well, it seems that Operations has the most need for basic weather forecast data whereas load forecasting and, to some extent, trading also have a strong requirement, however, it is for more specialized weather data.

Summary

The UtiliPoint survey is a start in characterizing how weather forecast and weather data is used by energy companies, who uses it and why and how weather data is procured. The results of the study show how important weather data is to an energy firm on one hand, and yet there is a sense that little monetary value is often placed by the energy firm on this data. Perhaps it's simply because weather forecast data is generally freely available and somewhat taken for granted? However, the study also suggests that specialist energy-specific weather data is a much needed tool that is provided by a range of specialist commercial companies and increasingly by internally employed meteorologists.

The new UtiliPoint report, The Use of Weather Data by Energy Companies, is now available for purchase at http://www.utilipoint.com/rci/details.asp?ProductID=1154.

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