Comparing linear and nonlinear forecasts for Taiwanʹs electricity consumption

This paper uses linear and nonlinear statistical models, including artificial neural network (ANN) methods, to investigate the influence of the four economic factors, which are the national income (NI), population (POP), gross of domestic production (GDP), and consumer price index (CPI) on the electricity consumption in Taiwan and then to develop an economic forecasting model. Both methods agree that POP and NI influence electricity consumption the most, whereas GDP the least. The results of comparing the out-of-sample forecasting capabilities of the two methods indicate the following. (1) If given a large amount of historical data, the forecasts of ARMAX are better than the other linear models. (2) The linear model is weaker on foretelling peaks and bottoms regardless the amount of historical data. (3) The forecasting performance of ANN is higher than the other linear models based on two sets of historical data considered in the paper. This is probably due to the fact that the ANN model is capable of catching sophisticated nonlinear integrating effects through a learning process. To sum up, the ANN method is more appropriate than the linear method for developing a forecasting model of electricity consumption. Moreover, researchers can employ either ANN or linear model to extract the important economic factors of the electricity consumption in Taiwan.