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Heating Degree Day

Trading Term

A heating degree day, abbreviated HDD, measures how far a day’s average temperature falls below a 65°F baseline, and is used as a proxy for demand for space heating. A day averaging 45°F accumulates 20 heating degree days, and seasonal totals are summed across the heating season. Because utility and natural gas revenues track heating demand closely, HDD indices underpin much of the weather derivatives market and are a natural underlying for contracts intended to smooth weather-driven revenue variability.

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