Economic Value of Weather and Climate Forecasts: Energy

Economic Value of Weather and Climate Forecasts
Case Studies: Energy

Considine, T.J., Jablonowski, C., Posner, B., and Bishop, C.H. (2004). The value of hurricane forecasts to oil and gas producers in the Gulf of Mexico. Journal of Applied Meteorology, 43, 1270-1281.

Hamlet, A.F., Huppert, D., and Lettenmaier, D.P. (2002). Economic value of long-lead streamflow forecasts for Columbia River hydropower. Journal of Water Resources Planning and Management, 128, 91-101.

Roulston, M.S., Kaplan, D.T., Hardenberg, J. and Smith, L.A. (2003). Using medium-range weather forecasts to improve the value of wind energy production. Renewable Energy, 28, 585-602.

Study	Considine, T.J., Jablonowski, C., Posner, B., and Bishop, C.H. (2004). The value of hurricane forecasts to oil and gas producers in the Gulf of Mexico. Journal of Applied Meteorology, 43, 1270-1281.
	Structure of Decision Problem	Forecast Characteristics	Information Valuation
	Decision: evacuate offshore drilling rigs and cease production Dynamics: no	Time Scale: 24 and 48 hours Predictand: hurricane track and intensity Format: probabilistic Type: realistic, derived Quality Changes: yes	Baselines: climatological VOI, imperfect: $10.5 million per year (1999 US $) for 24-hour forecasts; $8.1 million per year for 48-hour forecasts VOI, perfect: $239 million per year for 24-hour forecasts; $207 million per year for 48-hour forecasts Risk Treatment: expected value
Comments	$15 million per year increase in value of 48-hour forecasts with 50% increase in accuracy. Forecast value estimates sensitive to assumption about value of statistical life (VSL), with results based on VSL = $2.275 million.
Related Studies	Considine, T.J., Jablonowski, J., Posner, B., and Bishop, C. (2002). The efficiency gains from probabilistic weather forecasts: A case study of oil and gas producers in the Gulf of Mexico. National Science Foundation Final Report ATM-9908963, 102 pp. [pdf file available online]

Study	Hamlet, A.F., Huppert, D., and Lettenmaier, D.P. (2002). Economic value of long-lead streamflow forecasts for Columbia River hydropower. Journal of Water Resources Planning and Management, 128, 91-101.
	Structure of Decision Problem	Forecast Characteristics	Information Valuation
	Decision: hydropower sales on spot market Dynamics: yes	Time Scale: monthly to annual Predictand: precipitation, temperature Format: probabilistic (ensemble) Type: idealized (retrospective) Quality Changes: no	Baselines: current reservoir operating policy VOI, imperfect: $40-$153 million/year (1998 US $) VOI, perfect: not reported Risk Treatment: expected value
Comments	Streamflow forecasts derived from long-lead climate forecasts (based on teleconnections with ENSO and PDO). Current reservoir operating policy makes use of snowpack observations, but not climate forecasts. Forecast value proportional to price of power. Assume perfect forecast of ENSO category.

Study	Roulston, M.S., Kaplan, D.T., Hardenberg, J. and Smith, L.A. (2003). Using medium-range weather forecasts to improve the value of wind energy production. Renewable Energy, 28, 585-602.
	Structure of Decision Problem	Forecast Characteristics	Information Valuation
	Decision: amount of energy to purchase on spot market Dynamics: no	Time Scale: daily Predictand: wind Format: Probabilistic Type: realistic, derived Quality Changes: no	Baselines: climatological VOI, imperfect: 100% for 1 or 2 day lead times, 75% for 3 days, negligible > 5 days VOI, perfect: not reported Risk Treatment: expected value
Comments	Assumes artificial market model with active future and forward contract trading. Forecast value measured in terms of % increase over expected return for climatological information.