Balancing supply and demand and the influence of weather

Contents

• What are the main challenges of supply and demand?
• How do ‘demand’ forecasts work?
• Operational forecasts make good business sense
• The future of supply and demand

Understanding how the weather affects supply and demand is important for any business.

But when it comes to getting power and water out to workplaces and homes, it’s crucial. We play a critical role in helping water and energy companies address this challenge.

On the surface, predicting water and energy consumption might seem quite straightforward. People rely on central heating in the winter and air conditioning in the summer. When the temperature rises they tend to use more water. Yet, effectively balancing supply and demand for these industries comes down to a lot more than looking at general patterns. It requires a complex combination of three vital things:

1. a thorough understanding of consumer behaviour including how the weather impacts it
2. the very latest in scientific weather modelling and research
3. the ability to respond to customers’ needs quickly and effectively

What are the main challenges of supply and demand?

Our first challenge is understanding how consumers respond to the weather and weather forecasts on a day-to-day basis. –This is the initial step we take in fine-tuning supply and demand models.

Energy companies can better prepare for a surge in electricity demand if they know that people turn their lights on when low cloud blocks sunlight.

Water companies can expect a small drop in demand if rain is forecast because consumers are less likely to water their gardens.

Location also plays a part. In built-up areas or southern cities, water consumption tends to remain the same until temperatures reach 20 or 21 degrees. But in the north, where it’s cooler, we see a change in demand at around 18 degrees.

Adverse weather can have a significant impact on consumer behaviour and presents us with a different set of challenges. Take 2018’s ‘Beast from the East’. A sudden drop in temperature across the UK caused people to switch on their heating, resulting in a large spike in demand very late in the winter season.

Finally, there are financial implications to take into account. Energy companies may face balancing charges if they oversupply or undersupply the grid. This charge is then passed on to the consumer. The more accurately we can help them forecast supply and demand, the more affordable it is for the industries and consumers alike.

How do ‘demand’ forecasts work?

Different businesses will have different sensitivities to the weather.

For a detailed understanding of how weather impacts demand for a specific service or commodity, we carry out a ‘weather sensitivity analysis’. We then pair our weather data with their businesses demand data and use predictive analytics - a statistical technique - to identify trends and behaviour patterns.

We calibrate our models to predict changes in demand up to 14 days in advance. So, instead of saying there’s a 50% chance of rain the following day, our impact models might say there’s a 50% chance of demand running at a certain level over the next ten days.

This kind of forecast gives the customer plenty of time to put effective contingency plans in place, like ensuring water storage levels are full to cover a period of hot weather. What’s more, we can provide them in a specific format – as something visual, or as raw data that the customer can input into their own operations system.

We incorporate climate change and extreme weather scenarios – such as drought – into our impact model. The outputs support longer-term contingency planning. For example, dry year scenarios to help water companies plan for demand around droughts, or climate scenarios to help ensure the UK’s energy network remains resilient in the future.

Operational forecasts make good business sense

Of course, many businesses that juggle intricate supply and demand chains can find bespoke weather data useful. Supermarkets, for example, can  increase stock levels of barbeque food and cold drinks if they know an upcoming bank holiday weekend is going to be particularly hot and how this will impact demand.

Better preparation and informed decision-making means more efficient operations and reduced costs, regardless of your industry or business sector.

The future of supply and demand

We all know our climate is changing, but how will it impact demand for services and commodities across industry and infrastructure?

Will we see lifestyle changes as people adapt – such as an increase in demand for electric cars, or increased reliance on renewable energy?

And how will variations in the weather affect wind and solar power generation or the crops we grow in the future?

By addressing these types of questions, we can understand the challenges and opportunities our customers face and help them create effective resource plans for the next 25 years. Using weather data to inform operational decisions around supply and demand is vital – but it’s also fundamental for strategic planning in the years to come.