How accurate are forecasts of costs of energy? A methodological contribution

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Forecasts of the cost of energy are typically presented as point estimates; however forecasts are seldom accurate, which makes it important to understand the uncertainty around these point estimates. The scale of the differences between forecasts and outturns (i.e. contemporary estimates) of costs may have important implications for government decisions on the appropriate form (and level) of support, modelling energy scenarios or industry investment appraisal. This paper proposes a methodology to assess the accuracy of cost forecasts. We apply this to levelised costs of energy for different generation technologies due to the availability of comparable forecasts and contemporary estimates, however the same methodology could be applied to the components of levelised costs, such as capital costs. The estimated “forecast errors” capture the accuracy of previous forecasts and can provide objective bounds to the range around current forecasts for such costs. The results from applying this method are illustrated using publicly available data for on- and off-shore wind, Nuclear and CCGT technologies, revealing the possible scale of “forecast errors” for these technologies.
LanguageEnglish
Pages224-228
Number of pages5
JournalEnergy Policy
Volume87
Early online date25 Sep 2015
DOIs
Publication statusPublished - Dec 2015

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Keywords

  • cost of energy
  • forecast accuracy
  • electricity
  • energy scenarios

Cite this

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title = "How accurate are forecasts of costs of energy? A methodological contribution",
abstract = "Forecasts of the cost of energy are typically presented as point estimates; however forecasts are seldom accurate, which makes it important to understand the uncertainty around these point estimates. The scale of the differences between forecasts and outturns (i.e. contemporary estimates) of costs may have important implications for government decisions on the appropriate form (and level) of support, modelling energy scenarios or industry investment appraisal. This paper proposes a methodology to assess the accuracy of cost forecasts. We apply this to levelised costs of energy for different generation technologies due to the availability of comparable forecasts and contemporary estimates, however the same methodology could be applied to the components of levelised costs, such as capital costs. The estimated “forecast errors” capture the accuracy of previous forecasts and can provide objective bounds to the range around current forecasts for such costs. The results from applying this method are illustrated using publicly available data for on- and off-shore wind, Nuclear and CCGT technologies, revealing the possible scale of “forecast errors” for these technologies.",
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How accurate are forecasts of costs of energy? A methodological contribution. / Siddons, Craig; Allan, Grant; McIntyre, Stuart.

In: Energy Policy, Vol. 87, 12.2015, p. 224-228.

Research output: Contribution to journalArticle

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