Forecasting Electricity Demand

Abstract

Accurate forecasts of electricity demand inform investment decisions about power generation and supporting network infrastructure. Of major interest to energy policymakers, power utilities, and private investors alike, forecasts are also essential for development professionals. Inaccurate forecasts, whether they over- or under predict demand, can have dire social and economic consequences. Underestimating demand results in supply shortages and forced power outages, with serious consequences for productivity and economic growth. Overestimating demand can lead to overinvestment in generation capacity, possible financial distress, and, ultimately, higher electricity prices. This Live Wire provides practitioners with a quick reference to historical trends for electricity demand in the developing world and to new econometric forecasts at the country level. By providing a succinct overview, it allows the patterns and interrelationships of economic growth (and other relevant drivers) to come into focus. The note also reviews demand-forecasting methodologies and discusses their applicability in different contexts.