Electricity load and temperature - issues in dynamic specification

This paper considers the dynamic specification of the relationship between electricity load and air temperature. It is shown that this relationship has an important dynamic component and that ignoring this appears to bias the estimated effects of temperature on load. It is also shown that forms of autoregressive specification may give a good explanation of present load even if there are no dynamics in the causal relation. The assumptions underlying effective temperature and its empirical validity are investigated. Dynamic specification of the temperature response is shown to be conditional on the time of day, which brings into question the use of the effective temperature concept.