Weather knowledge is power in energy

Forecasts: Up-to-date and accurate information on changing conditions is economically vital to companies that sell, buy and deliver electricity.

July 17, 2002|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Knowing what the weather will be like every second in each state across the country could mean the difference between losing or gaining thousands of dollars for Bill Reed.

As senior vice president of energy trading and marketing for Ohio-based American Electric Power Co. Inc., it's vital for Reed to know how fast a storm front will move in, cooling the regions in its path. That's great for people looking for respite from sweltering summer weather. But for energy companies, it means residents and businesses won't need to crank up their air conditioners.

"If we waited until the hour it reached us, we might have 1,500 extra megawatts of power that we wouldn't be able to sell," Reed said. "If we saw the storm earlier, we could sell the power earlier. The capacity would not be wasted."

Reed's predicament is what AWS Energy Services wants to capitalize on, said James E. Anderson, director of the recently launched business, which offers live weather information and analysis online.

Because electricity cannot be stored and must be used as soon as it is produced, weather plays a crucial role in decisions made by energy companies to sell, buy and deliver power.

AWS Energy is betting that it can provide the most accurate forecast using the world's largest network of weather stations - 5,000 nationwide - owned by its parent company, AWS Convergence Technologies Inc.

Gaithersburg-based AWS has traditionally worked with elementary and secondary schools, which use the weather stations as educational tools for science and math students. Its WeatherNet program is active in more than 105 broadcast television markets in the United States.

The 9-year-old, privately held company, which has about 75 employees, is perhaps best known for its desktop WeatherBug service, which provides a constant stream of neighborhood weather conditions and storm warnings to about 11 million registered Internet users daily.

Now AWS wants a piece of the energy industry market.

Anderson said AWS began recognizing a few years ago that it had equipment that could be useful to energy companies. Most companies depend on the National Weather Service, which provides free data that is gathered, repackaged and reformatted for energy companies through secondary weather companies.

The only other direct source of weather information is AWS, which developed MesoStreamer, an online application designed specifically for energy traders and delivery businesses.

By paying a few thousand dollars to hundreds of thousands for AWS Energy's data, energy companies can get live weather conditions, short-term forecasts and historical weather analysis via desk computers.

"Here we are with 5,000 weather stations deployed around the country," Anderson said. "All we had to do was support it with sophisticated data centers to capture that information, organize it and format it for energy traders.

"It gives energy companies a jump on what's happening with a rapidly moving weather event up to an hour ahead of what the National Weather Service provides. That hour can be crucial when you're trying to make real-time, demand-based decisions."

In April, AWS Energy signed up 50 energy-trading companies to test MesoStreamer for 90 days to help it fine-tune the software.

Utilities analyst Rajeev Lalwani at Commerzbank Securities said that breaking into the energy industry could be difficult for a weather company.

"A lot of these energy companies already have something in place where they can look at the weather over the next couple of days, even the next couple of months," Lalwani said.

Anderson said the challenge for AWS is to convince energy traders and energy delivery companies that AWS Energy's up-to-the-second information will pay off by helping make crucial decisions faster. National Weather Service data is often an hour old or older, he said.

On April 4, for example, the National Weather Service forecast said a line of severe thunderstorms from the Ohio River Valley would arrive on the East Coast late in the day. The storm arrived earlier, and the temperature drop was greater than expected.

With MesoStreamer, Anderson said, traders were able to accurately predict the arrival of the front as the evening peak demand hour began and to see that temperatures would drop more than 20 degrees. As consumers began turning up the heat, traders were able to position themselves to take advantage of electricity prices that went from $25 a megawatt-hour to more than $60.

"We have to do forecasting a day ahead," said Reed, whose company is the first to enter into a contract with AWS Energy. "We have to know ahead of time how much we have to buy and sell, and how many generators we have to turn on. The quicker we can see reality, the quicker we can make decisions. This is the only stuff that gives us that real-time capability.

"They are providing a service that we didn't have prior to this."

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