Energy Conversion and Management 44 (2003) 2241–2249

www.elsevier.com/locate/enconman

Applications of improved grey prediction model

for power demand forecasting
a,* b
Che-Chiang Hsu , Chia-Yon Chen
a
Industrial Engineering and Management Department, Nan-Jeon Junior Institute of Technology,
178 Chau-Chin Road, Yen Shui, Tainan Hisen 73701, Taiwan, ROC
b
Institute of Resources Engineering, National Cheng-Kung University, 1 Ta-Hsueh Road, Tainan 70101, Taiwan, ROC
Received 10 July 2002; accepted 28 October 2002

Abstract
Grey theory is a truly multidisciplinary and generic theory that deals with systems that are characterized
by poor information and/or for which information is lacking. In this paper, an improved grey GM(1,1)
model, using a technique that combines residual modification with artificial neural network sign estimation,
is proposed. We use power demand forecasting of Taiwan as our case study to test the efficiency and ac-
curacy of the proposed method. According to the experimental results, our proposed new method obviously
can improve the prediction accuracy of the original grey model.
Ó 2003 Published by Elsevier Science Ltd.

Keywords: Grey theory; Improved GM(1,1) model; Artificial neural network

1. Introduction

Grey theory, developed originally by Deng [1], is a truly multidisciplinary and generic theory
that deals with systems that are characterized by poor information and/or for which information
is lacking. The fields covered by grey theory include systems analysis, data processing, modeling,
prediction, decision making and control. The grey theory mainly works on systems analysis with
poor, incomplete or uncertain messages. Grey forecasting models have been extensively used in
many applications [2–10]. In contrast to statistical methods, the potency of the original series
in the time series grey model, called GM(1,1), has been proven to be more than four [11]. In

*
Corresponding author. Tel.: +886-6-2757575x62826; fax: +886-6-2380421.
E-mail address: stronghs@mail.njtc.edu.tw (C.-C. Hsu).

0196-8904/03/$ - see front matter Ó 2003 Published by Elsevier Science Ltd.

doi:10.1016/S0196-8904(02)00248-0
2242 C.-C. Hsu, C.-Y. Chen / Energy Conversion and Management 44 (2003) 2241–2249

addition, assumptions regarding the statistical distribution of data are not necessary when ap-
plying grey theory. The accumulated generation operation (AGO) is one of the most important
characteristics of grey theory, and its main purpose is to reduce the randomness of data. In fact,
functions derived from AGO formulations of the original series are always well fitted to expo-
nential functions.
In this paper, we introduce a new technique that combines residual modification and residual
artificial neural network (ANN) sign estimation to improve the accuracy of the original GM(1,1)
model. Furthermore, we use power demand forecasting of Taiwan as our case study to examine
the model reliability and accuracy.

2. Original GM(1,1) forecasting model

The GM(1,1) is one of the most frequently used grey forecasting model. This model is a time
series forecasting model, encompassing a group of differential equations adapted for parameter
variance, rather than a first order differential equation. Its difference equations have structures
that vary with time rather than being general difference equations. Although it is not necessary to
employ all the data from the original series to construct the GM(1,1), the potency of the series
must be more than four. In addition, the data must be taken at equal intervals and in consecutive
order without bypassing any data [11]. The GM(1,1) model constructing process is described
below:
Denote the original data sequence by


xð0Þ ¼ xð0Þ ð1Þ; xð0Þ ð2Þ; xð0Þ ð3Þ; . . . ; xð0Þ ðnÞ ; ð1Þ

where n is the number of years observed.

The AGO formation of xð0Þ is defined as:


xð1Þ ¼ xð1Þ ð1Þ; xð1Þ ð2Þ; xð1Þ ð3Þ; . . . ; xð1Þ ðnÞ ; ð2Þ
where
X
k
xð1Þ ð1Þ ¼ xð0Þ ð1Þ; and xð1Þ ðkÞ ¼ xð0Þ ðmÞ; k ¼ 2; 3; . . . ; n: ð3Þ
m¼1

The GM(1,1) model can be constructed by establishing a first order differential equation for
xð1Þ ðkÞ as:
dxð1Þ ðkÞ=dk þ axð1Þ ðkÞ ¼ b: ð4Þ
Therefore, the solution of Eq. (4) can be obtained by using the least square method. That is,
!
b^ b^
x^ð1Þ ðkÞ ¼ xð0Þ ð1Þ  e^aðk1Þ þ ; ð5Þ
a^ a^
where
a; b^T ¼ ðBT BÞ1 BT Xn
½^ ð6Þ
 C.-C. Hsu, C.-Y. Chen / Energy Conversion and Management 44 (2003) 2241–2249 2243

and
2 3
0:5ðxð1Þ ð1Þ þ xð1Þ ð2ÞÞ 1
6 0:5ðxð1Þ ð2Þ þ xð1Þ ð3ÞÞ 17
6 7
B¼6 .. .. 7; ð7Þ
4 . .5
0:5ðxð1Þ ðn  1Þ þ xð1Þ ðnÞÞ 1
 T
Xn ¼ xð0Þ ð2Þ; xð0Þ ð3Þ; xð0Þ ð4Þ; . . . ; xð0Þ ðnÞ : ð8Þ
We obtained x^ð1Þ from Eq. (5). Let x^ð0Þ be the fitted and predicted series,
 
x^ð0Þ ¼ x^ð0Þ ð1Þ; x^ð0Þ ð2Þ; x^ð0Þ ð3Þ; . . . ; x^ð0Þ ðnÞ; . . . ; ð9Þ

where x^ð0Þ ð1Þ ¼ xð0Þ ð1Þ.

Applying the inverse AGO, we then have
!
ð0Þ ð0Þ b^
x^ ðkÞ ¼ x ð1Þ  ð1  ea^Þe^aðk1Þ ; k ¼ 2; 3; . . . ; ð10Þ
a^

where x^ð0Þ ð1Þ; x^ð0Þ ð2Þ; . . . ; x^ð0Þ ðnÞ are called the GM(1,1) fitted sequence, while x^ð0Þ ðn þ 1Þ;
x^ð0Þ ðn þ 2Þ; . . . ; are called the GM(1,1) forecast values.

3. Improved grey forecasting model

Deng [1] also developed a residual modification model, the residual GM(1,1) model. The dif-
ferences between the real values, xð0Þ ðkÞ, and the model predicted values, x^ð0Þ ðkÞ, are defined as the
residual series. We denote the residual series as qð0Þ :


qð0Þ ¼ qð0Þ ð2Þ; qð0Þ ð3Þ; qð0Þ ð4Þ; . . . ; qð0Þ ðnÞ ; ð11Þ
where
qð0Þ ðkÞ ¼ xð0Þ ðkÞ  x^ð0Þ ðkÞ: ð12Þ
The residual GM(1,1) model could be established to improve the predictive accuracy of the
original GM(1,1) model. The modified prediction values can be obtained by adding the forecasted
values of the residual GM(1,1) model to the original x^ð0Þ ðkÞ. However, the potency of the residual
series depends on the number of data points with the same sign, which is usually small when there
are few observations. In these cases, the potency of the residual series with the same sign may not
be more than four, and a residual GM(1,1) model cannot be established.
Here, we present an improved grey model to solve this problem. We establish a modification
sub-model that is a combination residual GM(1,1) forecaster that uses the absolute values of the
residual series with an ANN for residual sign estimation. The schematic of the improved fore-
casting system is shown in Fig. 1. The detail process to formulate this improved grey forecast
model is described as follows.
2244 C.-C. Hsu, C.-Y. Chen / Energy Conversion and Management 44 (2003) 2241–2249

Original Model
Data Input Original Forecast Output
Original GM(1,1)
Forecaster

Residual Input
Final Forecast
Modification
Sub-Model Combination
Module
Residual GM(1,1) Residual Forecast Output
Forecaster

ANN Sign
Estimater
Residual Sign Eastimate

Fig. 1. Schematic of the forecasting system.

3.1. Residual forecasting model

First, denote the absolute values of the residual series as eð0Þ :


eð0Þ ¼ eð0Þ ð2Þ; eð0Þ ð3Þ; eð0Þ ð4Þ; . . . ; eð0Þ ðnÞ ; ð13Þ
where
 
eð0Þ ¼ qð0Þ ðkÞ; k ¼ 2; 3; . . . ; n: ð14Þ
By using the same methods as Eqs. (1)–(10), a GM(1,1) model of eð0Þ can be established. Denote
the forecast residual series as ^eð0Þ ðkÞ, then
 
ð0Þ ð0Þ be
^e ðkÞ ¼ e ð2Þ  ð1  eae Þeae ðk1Þ ; k ¼ 2; 3; . . . ð15Þ
ae

3.2. ANN residual sign estimation model

In recent years, much research has been conducted on the application of artificial intelligence
techniques to forecasting problems. However, the model that has received extensive attention is
undoubtedly the ANN, cited as among the most powerful computational tools ever developed.
Fig. 2 presents an outline of a simple biological neural and an ANNÕs basic elements. ANN
models operate like a ‘‘black box’’, requiring no detailed information about the system. Instead,
they learn the relationship between the input parameters and the controlled and uncontrolled
variables by studying previous data. ANN models could handle large and complex systems with
many interrelated parameters. Several types of neural architectures are available, among which
the multi-layer back propagation (BP) neural network is the most widely used. As Fig. 3 reveals, a
BP network typically employs three or more layers for the architecture: an input layer, an output
layer and at least one hidden layer. The computational procedure of this network is described
below:
!
X
Yj ¼ f Wij Xij ; ð16Þ
i
 C.-C. Hsu, C.-Y. Chen / Energy Conversion and Management 44 (2003) 2241–2249 2245

Fig. 2. A simple neural [13] vs. a PE model.

where Yj is the output of node j, f ðÞ is the transfer function, wij is the connection weight between
node j and node i in the lower layer and Xi is the input signal from the node i in the lower
layer.
BP is a gradient descent algorithm. It tries to improve the performance of the neural network by
reducing the total error by changing the weights along its gradient. The BP algorithm minimizes
the square errors, which can be calculated by:

Fig. 3. A BP network.
2246 C.-C. Hsu, C.-Y. Chen / Energy Conversion and Management 44 (2003) 2241–2249

Input Layer Hidden Layer Output Layer

d(n-1)
d(n+1)
d(n)

Bias

Fig. 4. Structure of ANN sign forecasting system.

XX p
E ¼ 1=2 ½Oj  Yjp 2 ; ð17Þ
p j

where E is the square errors, p is the index of the pattern, O is the actual (target) output and Y is
the network output.
A two state ANN model is used here to predict the signs of the forecast residual series. First, we
introduce a dummy variable dðkÞ to indicate the sign of the kth year residual. Assume the sign of
the kth year residual is positive, then the value of dðkÞ is 1, otherwise it is 0. Then, we set up an
ANN model by using the values of dðn  1Þ and dðnÞ to estimate the values of dðn þ 1Þ. The
structure of this ANN sign forecasting system is shown in Fig. 4.
Let the sign of the kth year residual, sðkÞ, be

þ1; if dðkÞ ¼ 1
sðkÞ ¼ ; k ¼ 1; 2; . . . ; n; . . . ð18Þ
1; if dðkÞ ¼ 0
According to the equations illustrated above, an improved grey model combination residual
modification with ANN sign estimation can be further formulated as Eq. (19)
   
0ð0Þ ð0Þ b a aðk1Þ ð0Þ be
x^ ðkÞ ¼ x ð1Þ  ð1  e Þe þ sðkÞ e ð2Þ  ð1  eae Þeae ðk1Þ ;
a ae
k ¼ 1; 2; . . . ; n; n þ 1; . . . ð19Þ
Next, we will proceed to the power demand forecasting of Taiwan for our case study to examine
the reliability and accuracy of this improved GM(1,1) model.

4. Results

To demonstrate the effectiveness of the proposed method, we use the power demand forecasting
of Taiwan as an illustrating example. In this study, we use the historical annual power demand of
Taiwan from 1985 to 2000 as our research data. There are 16 observations, where 1985–1998 are
used for model fitting and 1999–2000 are reserved for ex post testing.
For the purposes of comparison, we also use the same number of observations, 14 (power
demand from 1985 to 1998), to formulate an ARIMA (p; d; q) model, where p is the order of the
auto-regressive part, d is the order of the differencing, and q is the order of the moving average
 C.-C. Hsu, C.-Y. Chen / Energy Conversion and Management 44 (2003) 2241–2249 2247

Table 1
Model values and forecast errors (unit: 103 W h)
Year Real value GM(1,1) Improved GM(1,1) ARIMA
Model value Error (%) Model value Error (%) Model value Error (%)
1985 47,919,102 47,919,102 0.00 47,919,102 0.00 47,919,102 0.00
1986 53,812,862 56,318,092 4.66 53,812,862 0.00 52,307,500 )2.80
1987 59,174,751 60,319,829 1.94 59,630,904 0.77 53,957,006 )8.82
1988 65,227,727 64,605,914 )0.95 65,310,510 0.13 60,243,936 )7.64
1989 69,251,809 69,196,550 )0.08 69,917,174 0.96 65,958,706 )4.76
1990 74,344,947 74,113,379 )0.31 74,850,394 0.68 72,405,080 )2.61
1991 80,977,405 79,379,577 )1.97 80,133,358 )1.04 76,688,020 )5.30
1992 85,290,354 85,019,971 )0.32 85,790,897 0.59 82,105,943 )3.73
1993 92,084,684 91,061,148 )1.11 91,849,611 )0.26 89,156,925 )3.18
1994 98,561,004 97,531,587 )1.04 98,337,985 )0.23 93,739,526 )4.89
1995 105,368,193 104,461,790 )0.86 105,286,530 )0.08 100,954,923 )4.19
1996 111,139,816 111,884,424 0.67 111,040,924 )0.09 107,828,630 )2.98
1997 118,299,046 119,834,482 1.30 118,971,794 0.57 115,049,615 )2.75
1998 128,129,801 128,349,438 0.17 127,467,127 )0.52 121,169,150 )5.43
MAPEa 1.54 0.57 4.24
(1986–1998)
1999 131,725,892 137,469,433 4.36 133,459,644 1.32 128,756,418 )2.25
2000 142,412,887 147,237,458 3.39 144,204,700 1.26 139,168,992 )2.28
MAPE 3.88 1.29 2.27
(1999–2000)
a Pn
MAPE ¼ 1n xð0Þ ðkÞ
k¼1 ½j^  xð0Þ ðkÞj=xð0Þ ðkÞ.

Fig. 5. Real values and model values for power demand of Taiwan from 1985 to 2000.
2248 C.-C. Hsu, C.-Y. Chen / Energy Conversion and Management 44 (2003) 2241–2249

Fig. 6. Model percentage error distribution from 1985 to 2000.

process [12]. As a result of statistical tests, the ARIMA model with ðp; d; qÞ ¼ ð0; 1; 0Þ is for-
mulated as follows:

x^ðkÞ ¼ 2404647:67 þ 1:04^

xðk  1Þ; k ¼ 2; 3; 4; . . . ; n; . . . ð20Þ

The predicted results obtained by the original GM(1,1) model, improved GM(1,1) model and
ARIMA model are shown in Table 1 and Fig. 5. The model percentage error distribution is also
shown in Fig. 6. The mean absolute percentage error (MAPE) of the GM(1,1) model, the ARIMA
model and our improved GM(1,1) model from 1999 to 2000 are 3.88%, 2.27% and 1.29%, re-
spectively. According to the results shown above, our improved grey model seems to obtain the
lowest post-forecasting errors among these models. It is indicated that the modification of our
improved GM(1,1) model can reduce model prediction errors effectively.

5. Conclusions

The original GM(1,1) model is a model with a group of differential equations adapted for
variance of parameters, and it is a powerful forecasting model, especially when the number of
observations is not large. In this paper, we have applied an improved grey GM(1,1) model by
using a technique that combines residual modification with ANN sign estimations. Our study
results show that this method can yield more accurate results than the original GM(1,1) model
and also solve problems resulting from having too few data, which may lead the same sign re-
siduals lower than four and violate the necessary condition of setting up a GM(1,1) model. The
improved grey models were then applied to predict the power demand of Taiwan. Finally,
through this study, our improved grey model, in this paper, is an appropriate forecasting method
to yield more accurate results than the original GM(1,1) model.
 C.-C. Hsu, C.-Y. Chen / Energy Conversion and Management 44 (2003) 2241–2249 2249

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