Persistent Bias in Probabilistic Production Forecasting and Simple Methods to Overcome It
I would like the members to take away one key idea: Unbiased probabilistic production forecasts are a crucial component in making value-creating investment decisions, but typical methods result in persistent, value-destroying biases.
Abstract
The lecture will explore
how to create accurate, unbiased probabilistic production forecasts and why this matters for better decision-making in energy and renewables projects.Β
There are quick and easy ways to make accurate, unbiased forecasts.
Increased awareness of uncertainty, combined with increasingly sophisticated tools and models for quantifying it, is causing a shift from deterministic to probabilistic production forecasting. For these forecasts to lead to better investment decisions (e.g. assessing how much itβs worth paying to reduce uncertainty, or incorporating flexibility to manage it), they need to be an accurate (unbiased) representation of the uncertainty. However, our industry has a general history of overconfidence (ranges too narrow) and, more damaging for valuecreation, optimism (consistent over-estimation).
A large dataset of historical probabilistic production forecasts was investigated for potential bias by comparing them with actual outcomes. They were found to be both optimistic and overconfident, bringing into question their usefulness for decision-making and the value of the sophisticated uncertainty modeling techniques that were used to generate them.
Fortunately, there are quick and easy methods for creating accurate probabilistic forecasts. We describe these and show that they would have produced accurate forecasts for our case study fields (they do not make use of knowing the actual outcomes!). Finally, preliminary results from a similar analysis of renewables projects indicate that the same problems exist. This could significantly impact government and company investment decisions and policy development in renewable projects.
π
Date: Thursday, 5 February 2026
π Location: Club York, Level 2,Β 95-99 York St, Sydney NSW 2000