Applied Economics

ISSN: 0003-6846 (Print) 1466-4283 (Online) Journal homepage: http://www.tandfonline.com/loi/raec20

Short–run electricity demand forecasts in

Maharashtra

Sajal Ghosh & Anjana Das

To cite this article: Sajal Ghosh & Anjana Das (2002) Short–run electricity demand forecasts in
Maharashtra, Applied Economics, 34:8, 1055-1059, DOI: 10.1080/00036840110064656

To link to this article: http://dx.doi.org/10.1080/00036840110064656

Published online: 04 Oct 2010.

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 Applied Economics, 2002, 34, 1055 ±1059

Short-run electricity demand forecasts in

Maharashtra
S A J A L G H O S H * and A N JA N A D A S
Indira Gandhi Institute of Development Research, Mumbai, India

This paper, has tried to forecast monthly maximum electricity demand for the state
Downloaded by [Orta Dogu Teknik Universitesi] at 12:16 26 February 2016

Maharashtra , India, using Multiplicative Seasonal Autoregressive Integrated Mov-

ing Average (MSARIMA) method for seasonally unadjusted monthly data spanning
from April 1980 to June 1999. The forecasted period is 18 months ahead from June
1999. This study’s basic ®ndings are that the series does not reveal any drastic change
for the forecasted period. It continues to follow the same trend along with the
seasonal variation.

I. INTRODUCTION Univariate time-series analysis incorporates making use of

Economic growth in a nation is closely related to the avail-
ability of energy. Electricity is the most ¯exible form of
energy that constitutes one of the vital infrastructural
inputs in socio-economic development. Due to increased
industrialization and commercialization; the demand for
electricity has been growing continuously. Since electricity
cannot be stored and there is substantial variation of
demand for electricity within a day, between the days and
between the months so precise forecasting of demand for
electricity is of great importance. This enables the policy
maker to plan for cost-e€ ective investment and operation
of the existing and new power plants so that the supply of
electricity can be adequate enough to meet the future
demand and its variation. Time series forecasting is a
sophisticated and widely used technique to forecast the
future demand.
A time series usually contains secular trends, seasonal
variations, cyclical movements and irregular components.
Cyclical component, which is basically related to the busi-
ness cycle movement, causes change considerably over a
period of 10 to 15 years. Hence for a short span of time
it becomes really di cult to distinguish between the trend
and cyclical components in a series.1
Time series forecasting is a technique that helps to pre-
dict what will occur in future if the trends do not change.
historical data of the concerned variable to construct a
model that describes the behaviour of this variable (time-
series) and allows making satisfactory forecast for the
future.
This paper has tried to forecast the short-run (monthly)
maximum electricity demand in Maharashtra , an import-
ant state located at the western part of India, by using
univariate Box±Jenkins’ Autoregressive Integrated Moving
Average (ARIMA) Technique. ARIMA model has long
been used by researchers and modellers in order to forecast
the short-run electricity demand (Nelson et al., 1989;
Tserkezos, 1992; Kokkelenberg and Mount, 1993; Chavez
et al., 1999).
The paper is organized in the following manner: Section
II contains the theories of ARIMA models. Section III
gives description of the data and statistical analysis of the
series. Finally, Section IV wraps up the work into conclu-
sion.
II. ARIMA MODELS
A linear non-stationar y stochastic process is said to be
homogeneous of degree d when upon di€ erentiating the
original process by d times, the resulting transformed pro-

* Corresponding author: Energy Division, CII, Gate No. 31, North Block, J. N. Stadium, New Delhi 110 003, India. E-mail: sajal.ghosh@
ciionline.org
1
In this case it is assumed that the trend includes the cyclical component. So, trend and seasonal components are the permanent
components whereas random component captures all idiosyncratic nature of the series.

Applied Economics ISSN 0003±6846 print/ISSN 1466±4283 online # 2002 Taylor & Francis Ltd 1055
http://www.tandf.co.uk/journals
DOI: 10.1080 /0003684011006465 6
 1056
cess has become covariance-stationary . If the original series
Xt is homogeneous of degree d, then
¢d Xt ˆ …1 ¡ L†d Xt ˆ Zt ; t ˆ 1; 2; 3; . . . ; T
is covariance-stationary . Here, L is the backward shift
operator. An integrated process Xt is designed as an
ARIMA (p; d; q), if taking di€ erences of order d, a station-
ary process Zt of the type ARMA (p; q) is obtained.
The ARIMA (p, d, q) model is expressed by the function
Zt ˆ ¿1 Zt¡1 ‡ ¿2 Zt¡2 ‡ . . . . . . ‡ ¿p Zt¡p
‡ut ¡ ³1 ut¡1 ¡ ³2 ut¡2 ¡ . . . . . . ¡ ³q ut¡q
Or ¿…L†…1 ¡ L†d Xt ˆ ³…L†ut
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Non-stationar y homogeneou s models with seasonal vari-
ations, ARIMA (P,D,Q)s : In most of the monthly electri-
city time series data, seasonal variation is one of the
main sources of non-stationarity . To remove seasonal
non-stationarit y of such series where seasonality is yearly,
one can proceed with seasonal di€ erencing by s ˆ 12
times. The seasonal models ARIMA (P; D; Q), which are
not stationary but homogeneous of degree D can be
expressed as
Zt ˆ ©1 Zt¡s ‡ ©2 Zt¡2s ‡ . . . . . . ‡ ©p Zt¡ps
‡d ‡ ut ¡ £1 ut¡s ¡ £2 ut¡2s ¡ . . .
Or ©p …Ls †…1 ¡ Ls †D Xt ˆ d ‡ £Q …Ls †ut
where © and £ are ®xed seasonal autoregressive (AR) and
moving average (MA) parameters.
General multiplicative seasonal models, ARIMA (p, d, q)
(P, D, Q)s 2 : These models take into account the e€ ect
of trend and seasonal ¯uctuations of a time series and
are expressed as:
©p …Ls †¿p …L†…1 ¡ Ls †D …1 ¡ L†d Xt ˆ £Q …Ls †³q …L†ut
Root mean square error (RMSE) criterion: To evaluate
the performance of the model one can consider RMSE
criterion, which is de®ned as:
h X i1=2
RMSE ˆ …1=T † …X^t ¡ Xt †2 …5†
where X^t is the one step ahead forecast or ®tted value of Xt
based on an estimated model, and T is the number of
observations used in the computation. According to the
above de®nition the RMSE is an estimate of the standard
deviation of random errors (s), if the model is appropriate
and the parameter estimates of the model are unbiased.
The post-sampl e RMSE is a measure of model perform-
2
For a time series having both seasonal and nonseasonal components multiplicative ARIMA type of models are preferred to additive
ARIMA.
S. Ghosh and A. Das
ance of forecast accuracy using the estimated model.
Assuming the estimated model is representative during
the forecast period, the post-sample RMSE is a guide to
…1† assess which model better explains the forecasted time
series.
ARIMA model building
For a given time series, it is important to know which
ARIMA model is capable of generating the underlying
series. In other words, which model adequately represents
the behaviour of the concerned Time Series so that the
forecasts of the series under study can be done precisely.
…2† Box±Jenkins consider model building as an iterative pro-
cess which can be divided into four stages: identi®cation,
estimation, diagnosti c checking and forecasting.
Identi®cation: This stage basically tries to identify an
appropriate ARIMA model for the underlying stationary
time series on the basis of Sample Autocorrelation Func-
tion (ACF) and Partial Autocorrelation Function
(PACF). If the series is nonstationar y it is ®rst trans-
formed to covariance-stationar y and then one can easily
identify the possible values of the regular part of the
model i.e., autoregressive order p and moving average
order q in a univariate ARMA model along with the
seasonal part.
…3† Estimation: In the estimation stage, point estimates of the
coe cients can be obtained by the method of maximum
likelihood. Associated standard errors are also provided,
suggesting which coe cients could be dropped.
Diagnosti c checking: In this stage, additional autoregres-
sive and moving average variables can be added and their
statistical signi®cance can be examined. One should also
examine whether the residuals of the model appear to be
…4† white noise process. After the model has been respeci®ed,
it will be reestimated and diagnostic checks will be
applied again until the coe cients are reasonably statisti-
cally signi®cant and the residuals are random.
Forecasting: After the diagnostic checking comes the fun-
damental aim of the methodology, i.e., the forecasts of
the future values of the time series.
I I I . D A T A D ES C R I P T I O N A N D
STATISTICAL ANALYSIS
In this article, the variable under study is `maximum
monthly electricity demand of Maharashtra ’ from April
 Short-run electricity demand forecasts in Maharashtra 1057
12000 Also, inverse autocorrelation function as well as PACF
plot show that the autocorrelations are not only signi®cant
10000
at lag 12, lags 1, 11 and 13 are also signi®cant. This gives a
8000 clear indication that there must be nonseasonal systematic
component, (trend here) making the series nonstationary .
6000 Besides, Augmented Dickey±Fuller (ADF) test also assures
Mw

that the series has nonstationarity .

4000
ADF test is conducted with the following model:
2000
¢Xt ˆ a0 ‡ bt ‡ a1 Xt¡1 ‡ §®j ¢Xt¡j ‡ "t ; … j : 1; 2; . . . ; p†
0 …6†
1
14
27
40
53
66
79
92
105
118
131
144
157
170
183
196
209
222
where Xt is the underlying variable at time t, "t is the error
Months (4/80 to 6/99)
term and ¬0 ; ­ ; ¬1 and ®j are the parameters to be esti-
Fig. 1. Monthly maximum electricity demand in Maharashtra mated.
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The lag terms are introduced in order to justify that

errors are uncorrelated with lag terms. For the above-
1980 to June 1999. The data have been collected from speci®ed model the hypothesis, which would be of interest,
Maharashtra State Electricity Board. This paper made an is:
attempt to forecast the short-run maximum electricity
demand of Maharashtra . The forecast periods are 18 H 0 : a0 ˆ 0 and ¬1 ˆ 0
months ahead from June 1999. This study has used simple
The results of the unit root tests are reported in Table 1. It
Box±Jenkins’ methodology for modelling this variable. The
has been found that the null hypothesis of unit root is not
statistical package used for this purpose is `SAS version
rejected at the 10% level of signi®cance implying that the
6.12’.
series is nonstationary . Hence, this study takes the ®rst
From the raw plot of the time series data, as shown in
di€ erence of the series and carried out similar analysis
Fig. 1, it is clear that the series poses nonstationar y behav-
(stated above) on the ®rst di€ erenced series where the
iour along with increasing trend and seasonal variation. In
null hypothesis of a unit root is rejected at 10% level of
order to make a robust conclusion on the seasonal pattern
signi®cance.
of the series the level variable is regressed on 12 seasonal
Contrary to the unit root tests, which indicate stationar-
dummies. It has been observed that each of the dummy co-
ity after taking ®rst di€ erence, it has been found that the
e cients is signi®cantly di€ erent from zero.3 So, seasonal
correlogram associated with the ®rst di€ erence series
component is a systematic cause of variation of the con-
appear to show that the series is still nonstationary. The
cerned series. But in order to know if seasonal component
ACF and PACF still show signi®cant spikes4 at lag 1, 12,
is the only systematic part, which is causing nonstationarity
11 and 13 and the rate of decaying in ACF is linear
or whether there is any other systematic component present
indicating the presence of seasonality as well as non-
in the series the classical Box± Jenkins’ Identi®cation pro-
stationarity.
cedure is proceeded with. From correlogram (not reported
As a result, this study takes ®rst and span-12 di€ erence
here) it is observed that ACF tails o€ very slowly at higher
of the series. Identi®cation stage con®rms stationarity of
lags indicating the presence of nonstationarit y in the series.
the series.
In the next stage, this study has estimated about 21 mod-
els taking di€ erent values of p and q ranging from 0 to 3
Table 1. Unit root tests of the maximum monthly electricity and for seasonal AR and/or MA component P ˆ 0
demand or Q ˆ 3 respectively. It has been found that ARIMA (0,
Critical value 1, 3) (0, 12, 1) is the best ®tted model in terms of smallest
Origin ADf lag at 10% level Akike Information Criterion (AIC) and Schwarz Bayesiam
signi®cance length Adf statistic of signi®cance Criterion (SBC) to explain the maximum monthly electri-
city demand in Maharashtra. This model has also ful®lled
Level 11 ¡0.81117 ¡3.13
First di€ erence* 15 ¡4.2006 ¡2.57 RMSE criterion.
Hence the estimated model (with absolute t-ratios in
Notes: * Rejection of null hypothesis of a unit root. parentheses) is:
3
Values will be provided on request.
4
A large statistically signi®cant autocorrelation is termed as Spike.
 1058 S. Ghosh and A. Das
Table 2. Diagnostic checking of the estimated model 12000

Probability 10000
[Table value>
2
Lag Chi-sq(À ) dof Observed (À2 )] 8000
Original
6 3.60 12 0.16

Mw
6000 Forecast
12 6.18 8 0.62
18 9.12 14 0.82 4000
24 10.51 20 0.95
30 15.33 26 0.95
2000
36 21.37 32 0.92
42 27.88 38 0.88
0
Jan-98 Jul-98 Feb-99 Aug-99 Mar-00 Oct-00 Apr-01
12
…1 ¡ L†…1 ¡ L †…Xt ¡ 1:86† Months (6/98 to 12/2000)

…4:94† Fig. 2. Electricity demand forecasts in Maharashtra

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ˆ …1 ¡ 0:64L ‡ 0:01L2 ¡ 0:28L3 †…1 ¡ 0:88L12 †ut

…10:21† …¡0:12† …4:26† …15:98†
…AIC† ˆ 3139:13
…SBC† ˆ 3156:12
Diagnostic checking of this model shows that the estimated
residuals are random as shown in Table 2. Again, the cor-
relogram of the estimated residuals (not reported here)
shows that the ACFs are within 95% con®dence interval
limits.
The estimated model is used to forecast monthly maxi-
mum electricity demand in Maharhastra for 18 months
from June 1999. The forecast series and plot of the same
are shown in Table 3 and Fig. 2 respectively.
IV. CONCLUSION
Maharashtra has a total geographical area of 308 000
square kilometres. The State has a total population and
peak electricity demand of 89 million and 9719 Mega-
Watt (MW) respectively where as Maharashtra State
Electricity Board (MSEB) has a total installed capacity of
about 11544 MW in 1998±1999. Agricultural and industrial
sector consume about 32 and 34% of the electricity sold
respectively. Per capita Gross Domestic Product and per
capita electricity consumption are Rupees 20343 and 558
kilo-watt-Hour respectively in 1998±1999, which are well
above the national level (Economic Survey of Maharashtra
1998±1999).
This paper has predicted maximum monthly electricity
demand in Maharashtra for 18 months ahead from June
1999. Forecast series have not revealed any drastic change
in maximum demand for electricity in the near future. The
series appears to follow the same trend along with seasonal
variation. The prediction will have minimum forecast error
if there is no structural break within the forecast
period.

Table 3. Electricity demand forecasts in Maharashtra

Observation Forecast (Mw) Lower 5% (Mw) Upper 5% (Mw)

Jul-1999 10 443.5465 9900.3144 10 986.7785

Aug-1999 10 595.6632 10 019.9272 11 171.3993
Sep-1999 10 356.1805 9748.0314 10 964.3295
Oct-1999 10 512.1545 9902.466 11 121.8431
Nov-1999 10 660.9563 10 049.7322 11 272.1805
Dec-1999 10 773.0345 10 160.2786 11 385.7905
Jan-2000 10 832.1726 10 217.8887 11 446.4565
Feb-2000 10 774.7109 10 158.9029 11 390.519
Mar-2000 10 532.3192 9914.9908 11 149.6477
Apr-2000 10 338.4057 9719.5606 10 957.2508
May-2000 10 346.6709 9726.3129 10 967.029
Jun-2000 10 650.6672 10 028.7999 11 272.5345
Jul-2000 10 752.7069 10 121.6361 11 383.7777
Aug-2000 11 112.0071 10 477.5154 11 746.4988
Sep-2000 10 978.5122 10 340.5547 11 616.4697
Oct-2000 11 136.3473 10 496.5559 11 776.1388
Nov-2000 11 287.0102 10 645.3901 11 928.6303
Dec-2000 11 400.9495 10 757.5058 12 044.3931
 Short-run electricity demand forecasts in Maharashtra
A C K N O W LE D G E M E N TS
Sajal Ghosh is grateful to his wife Kakali Kanjilal for her
extensive comments and suggestions.
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