Power Measurement

An improved definition of heating and cooling degree-days for power markets.

Anyone who owns an air conditioner and pays an electric bill knows that weather drives demand for electricity, but quantifying the relationship between weather and electricity demand isn't easy. Was last winter severely cold? Winters are always cold. If it really was cold, exactly how cold was it?

One of the underlying problems is that different regions of the country have drastically different weather, technologies for generation, and local habits for keeping cool in the summer and warm in the winter. Traditionally, people have looked at weather through heating degree-days (HDD) and cooling degree-days (CDD). A common assumption with these metrics is that 65^o F is the universal thermometer setting. When the average daily temperature drops below this point, heating increases as measured by positive HDD. Alternatively, as temperatures warm above 65^o F, cooling increases leading to a higher CDD score. These are reasonable assumptions and are widely used as the basis for many weather risk-management applications and standardized weather commodity trading platforms.