Issue Asymmetric social costs of electricity demand forecast errors

Summary

Forecast misses impose costs in either direction, but the form of the damage differs. When demand is underestimated, generation and grid capacity fail to keep pace and supply reliability and blackout risk deteriorate. Overestimation raises no immediate alarm, yet surplus plants and lines can turn into unrecoverable sunk costs and stranded assets. Low utilisation of oversized capacity squeezes the finances of public and private generators, discourages investment and raises social adjustment costs. Siting new plants and transmission lines, or retiring units early, can also sharpen local acceptance problems and political conflict.