Degree Days are the most common and popular weather variable utilized for weather derivatives, energy trading, weather risk management and seasonal planning.

Degree Days are a practical method for determining cumulative temperatures over the course of a season. Originally designed to evaluate energy demand and consumption, degree days are based on how far the average temperature departs from a human comfort level of 65 °F *. Simply put, each degree of temperature above 65 °F is counted as one cooling degree day, and each degree of temperature below 65°F is counted as one heating degree day. For example, a day with an average temperature of 80 °F will have 15 cooling degree days.

The number of degree days accumulated in a day are proportional to the amount of heating/cooling you would have to do to a building to reach the human comfort level of 65 °F. The degree days are accumulated each day over the course of a heating/cooling season, and can be compared to a long term (multi-year) average, or normal, to see if that season was warmer or cooler than usual. The graphic to the right (click for larger version) shows normal heating degree day accumulations over the full heating season (Source: NESDIS, NOAA).