Implementation of model/method

The electricity load demand forecasting would make use of two exponential smoothing
methods which are namely; the standard Holt-Winters exponential smoothing method as well as
the Holt-Winters Taylor (or HWT) exponential smoothing method. The former method could be
used to calculate the pattern time series for one season which includes the k-step-ahead forecast
Xt(k), and the smoothing parameters α , γ ,∧δ. Below are the listed formulas for the trend, level,
seasonality, and forecast. Since this is a one seasonal pattern, the is only one formula for
Seasonality (lt) = δ(xt/st) + (1 - δ)lt, the forecast, trend, and level are as follows: Forecast Xt(k)
= (St + kTt)lt-s+k, Trend (Tt) = γ (St – St-1) + (1 - γ )Tt-1, Level (St) = α(xt/lt-s) + (1- α)(st-1 +
Tt-1). This seasonality is multiplicative which means that the seasonal index is multiplied by the
underlying level. This assumes an estimate of local slopes (Tt) and an additive trend by
smoothing successive differences (e.g. St - St-1). The local level St, the local s-period seasonal
index It which is estimated by smoothing the ratio of the observed value Xt to a local level St.
Furthermore, a successful implementation would require two different standard Holt-winters
methods which are the Holt-winters method for intraday seasonality (48 half-hour cycle) and the
intraweek seasonality which is the 336-half hour period or cycle. The William and Miller
procedure were implemented while calculating initial smoothed values for the seasonal, trend,
and level components with simple averages derived from the first few data observations.
The Holt-Winters Taylor (or HWT) exponential smoothing method would be
implemented by using the following formulas; Forecast = Xt (k) = (St + kTt)Dt-sl+kWt-s2+k,
Level (St) = α(Xt/Dt-sl) + (1 - α) * (St-1 + Tt-1), Trend (Tt) = γ (St – St-1) + (1 - γ )Tt-1, it would
require double seasonality e.g. Seasonality 1 which is the intraday seasonality is measured using
(Dt) = δ(Xt/StWt-sl) + (1-δ) Dt-sl, Seasonality 2 which represents the intraweek seasonality is
measured using (Wt) = ω(Xt/StWt-sl) + (1-ω)Wt-sl. Since this method possesses dual
seasonality, two seasonal cycles would be assigned, in this case they will be s1 and s2 which are
48 and 366 respectively for intraday and intraweek seasonal cycles.
Although this method application is useful and provides results, the forecasting equation
of this method may lead to errors that come from unrealistic overprediction if the current
estimated trend is too large or too negative. To improve on this, the group has decided to modify
the Holt-Winter Taylor exponential smoothing method since dual seasonality occurs; Forecast
Xt(k) = (St + √ kTt ¿ Dt−sl + kWt-s2+k. In this equation, the k index is square rooted when
forecasting future demand values which helps reduce the current trend impact with increasing k.
another way the group modified this equation was by cube rooting the k index instead of square
rooting; Forecast Xt(k) = (St + ∛kTt)Dt-sl + kWt-s2+k.
In addition, the empirical analysis was implemented by measuring the half-hourly load
demand data gotten from Malaysia in a single year between September 1, 2005 to August 31,
2006 as seen below:

Eleven months were used to estimate method parameters while the last month is used to
measure the post-sample forecast performance. To measure forecast accuracy, the mean absolute
percentage error (MAPE) would be used widely in forecasting literatures with K being the
number of predicted values:

By using a non-linear optimization routine to minimize the sum of the squared forecast
errors, the routine could be used to obtain the parameter values; α = 0.9, β = 0, δ = 1, ω = 1. The
forecast made were for in and out smaples and the MAPE results are displayed in the table
below:
Table 1- MAPE of in-sample and out-smaple forecasts

Method 1 Method 2 Method 3 Method 4 Method 5

In sample 1.42% 1.07% 1.16% 1.14% 1.14%
forecast
Out sample 51.01% 11.29% 9.59% 12.38% 12.38%
 (1 month)
forecast

Table 2- The MAPE of k-step ahead and one-step ahead out-sample forescats

k-step ahead One step ahead Reducing

Method 1 51.01% 1.28% 49.73%
Method 2 11.29% 1.04% 10.25%
Method 3 9.59% 1.14% 8.45%

According to the table above, it is seen that the one step ahead forecast are not greatly
influence by lead time as the k-step ahead forecast is instead the results show that the one step
forecast data follows that actual data more closely when compared to the k-step ahead forecast.

Conclusion
Therefore, from the observation of five exponential smoothing methods to forecast the
daily and weekly seasonal electricity load demands, the group can confidently attain that the best
forecast method used was the Holt-Winters Taylor (or HWT) exponential smoothing method
according to the MAPE results obtained. This was determined by the level which it outperformed
the other forecast methods which includes the traditional and modified exponential smoothing
methods. After comparing these methods by their performances using the k-step and one-step
ahead forecasts, it was determined that the lead times do not influence the one-step ahead
forecast. Therefore, forecasting electricity load demand should consider using the one-step ahead
forecasts since the accuracy of methods are influenced by forecast horizons.