Cooling Degree Day (CDD)
What Is a Cooling Degree Day? (CDD)
A cooling degree day (CDD) is a measurement intended to evaluate the demand for energy expected to cool buildings. It is the number of degrees that daily's average temperature is above 65o Fahrenheit (18o Celsius). Studies have shown that when the outside temperature arrives at that level, individuals inside never again need the building warmed, however rather start to think about cooling the building.
This measure has pertinence to the price of weather derivatives traded on the basis of an index comprised of month to month CDD values. The settlement price for a climate futures contract is calculated by summing CDD values for a month and increasing that sum by $20.
Figuring out Cooling Degree Days (CDD)
While CDD can depict the overall requirement for cooling as part of the planning for residential or commercial buildings, it is critical for the pricing of climate derivatives. These instruments make a risk management device that utility, agriculture, construction, and different firms can use to hedge their activities impacted by outdoor climate, whether it be energy demand, developing season, or outdoor work time.
One thing to note is that CDD are very confined. Cooling needs shift enormously contingent upon the geographical region. Moreover, the average CDD in one building might not have a similar impact as it does on the building next door due to differences in construction, orientation relative to different buildings, protection, sun exposure, and the idea of the building's use.
A comparable measurement, heating degree day (HDD), mirrors the amount of energy expected to warm a home or business.
The most effective method to Calculate Cooling Degree Days (CDD)
There are several methods for working out CDD. The more nitty gritty a record of temperature data, the more precisely the CDD can be calculated. Here are instances of two different ways that are frequently utilized.
- Deduct 65 from the average of a day's high and low temperatures. For instance, in the event that the day's average temperature is 75o F, its CDD is 10. Assuming that day's average is below 65, the outcome is set to zero. In the mean time, in the event that consistently in a 30-day month had an average temperature of 75o F, the month's CDD value would be 300 (10 x 30). The nominal settlement value for that month's climate derivative contract would in this way be $6,000 (300 x $20).
A utility company could perceive that the price they are paying energy producers will be cost-restrictive assuming they need to give surprisingly energy. Utilizing the data from the previous model, they could take climate data from previous years and current seasons to estimate their risk. Climate derivative (futures) contracts could then be purchased to safeguard against critical losses assuming the company expected higher temperatures. These equivalent contracts could moreover be sold assuming the company expected altogether lower temperatures.
- Deduct 65 from every half-hourly temperature perusing, with the provision that negative values be set to zero, sum the outcome and separation by 48 (48 half-hours in a day). Then, at that point, sum that value more than 30 (for a 30-day month) and duplicate by $20. On the off chance that a given day's value is not exactly or equivalent to zero, that day has zero CDD. In any case, assuming the value is positive, that number addresses the CDD on that day.
Highlights
- Taking an average of the number of degrees and days over 65 assists organizations that with having a need to hedge against energy costs.
- In the event that the day's average is below 65, the outcome is set to zero.
- It depends on the number of days where the temperature is over 65 degrees Fahrenheit, and the number of degrees over 65.
- Cooling degree days (CDD) is a measure that assists with working on the cost of projected energy consumption.
