BUS606: Operations and Supply Chain Management

This note provides both off-the-shelf historical trends for electricity demand growth and forward-looking 10-year demand forecasts for 106 developing countries

Based on a review of historic evidence and a systematic econometric effort, this note has shown that while electricity demand growth is strongly related to GDP, naïve heuristics based on GDP alone can be quite misleading. Other factors, such as overall level of economic development, the size of the electric system, and industrial structure also play a role in shaping future electricity demand.

This note provides both off-the-shelf historical trends for electricity-demand growth and forward-looking 10-year demand forecasts for 106 developing countries, which are available in table 3 at the end of this note. The latter are based on time-series econometric methods, which are useful reference points when more elaborate forecasts are either unavailable or too costly to obtain. These forecasts are demonstrated to be an order of magnitude more accurate than the crude heuristics commonly used, which assume that future electricity production grows at a constant historic rate or is proportional to GDP growth. On average, they are able to predict electricity demand with a forecasting error of only 6 percent. They are also more applicable in data-scarce environments than are more traditional microeconometric approaches, which rely on detailed, quarterly times-series of electricity demand broken down by customer category, combined with parallel information on economic growth, demographics, and pricing.

Careful judgment and common sense should be exercised in applying the forecasts described here to specific country or project settings. Trends shift over time, and forecasts are likely to be less meaningful in power sectors undergoing major structural shifts.

Table 3. Electricity demand: Historical and forecast growth rates to 2020