Why not use long-term forecasting?
No matter how powerful the computers that model the atmosphere and weather become, accurate long-term forecasting, such as that seen in the short-term, is simply not possible. While seasonal forecasts can give an indication of the average conditions over the next few months, these can only help a company plan for costs and won’t protect revenues. How did it all start? The weather derivative market was started by Enron in 1997 and the first trade was between two US utilities Enron and Koch. In the US, the market was led by the energy industry, whose profits are directly affected by the weather given the strong seasonal demand for power for heating in the winter and air-conditioning in the summer. The market was slower to pick up in Europe, one of the main reasons being lack of easy access to data, understanding of the characteristics of weather data and lack of the products needed in order for a weather derivative market to develop says Cindy Dawes. In Europe, countries monitor weather
