Balancing 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 absolutely crucial. Our operational forecast services play a huge role in helping water and energy companies address this challenge – as Katie Chowienczyk, Senior Scientific Consultant, explains.  

What are the main challenges of supply and demand? 

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, and when it gets hot they also tend to use more water. But balancing supply and demand effectively across these industries comes down to a lot more than looking at general patterns. It requires a complex combination of three vital things: a thorough understanding of consumer behaviour – and how this is affected by the UK’s notoriously changeable weather; the very latest in scientific weather modelling and research; and finally, the ability to respond swiftly and effectively to customers’ needs.    

Understanding how consumers respond to the weather and weather forecasts on a day-to-day basis is the first challenge we face – and the initial step we take in fine-tuning supply and demand models. If an energy company knows that people turn their lights on when low cloud blocks sunlight, for instance, they can better meet the rise in demand for electricity. Water companies can expect a small drop in demand if rain is predicted because consumers are less likely to water their gardens.  

Location also plays a part. In built-up areas or cities, water consumption tends to remain unchanged until temperatures reach 20 or 21 degrees. But in the north, where it’s cooler, it only has to get to around 18 degrees before we see a difference in how much consumers use.  

We’re presented with a different set of challenges when it comes to more adverse weather, which can significantly change consumer behaviour. Take last year’s Beast from the East. Due to the sudden drop in temperature, people switched their heating on causing a large spike in demand very late in the winter season.  

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

How do ‘demand’ forecasts work? 

Different businesses will have different sensitivities to the weather. To get a detailed understanding of how demand for each individual business’s services or commodities is impacted by various aspects of the weather, we carry out a ‘weather sensitivity analysis’. We use the latest predictive analytics tools, pairing their ‘demand’ data with our weather data to produce short and long-term demand forecasts. 

Our models can be calibrated 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, they can come in a specific format – as something visual, or as raw data that the customer can feed into their own operations system. 

Climate change and extreme weather event scenarios – such as drought – can also be incorporated into our impact model to aid 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 future resilience of the UK’s energy network. 

Operational forecasts make good business sense 

Of course, many businesses that juggle intricate supply and demand chains can benefit hugely from bespoke weather data that helps mitigate risks specific to them. Supermarkets, for example, can accurately increase stock levels of barbeque food and cold drinks if they know an upcoming bank holiday weekend is going to be particularly hot and to what extent this will impact demand. Better preparation and informed decision-making means more efficient operations and reduced costs, regardless of 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 future variations in the weather affect wind and solar power generation or the crops we grow? 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 in an intelligent way is vital for everyday operational decision-making – but it’s also fundamental for strategic planning in the years to come.