Climate and Weather Uncertainty in the Electricity Industry

Abstract

The short-term variability of weather patterns and, over the longer term, of climate has asignificant impact on the generation, transmission and demand for electricity. Utilities traditionallymanaged these effects through central planning and vertical integration. In the long term, sufficientplant was planned and constructed to meet anticipated peak demand, whilst the costs of dealingwith short-term variability were absorbed and passed on to consumers. With deregulation, the needto manage weather and climate effects has changed dramatically (e.g. imbalance penalties forincorrectly predicted demand). In the longer term, there is a risk that climate change will alter theavailability of renewable energy resources, adversely affecting the financial viability of such plant.This paper examines the extent of climatic and weather-related uncertainty affecting the electricityindustry and reviews currently available techniques of assessing and managing both short and longterm risks.