Energy demand forecasting plays an important role in decision making. A mathematical model known as grey model GM(1,1) has been, herewith, employed successfully in the estimation of energy demand. In order to improve the forecast accuracy, the original GM(1,1) models are improved by using three methodologies of the 3-points average technology and the residual modification. This method takes into account the general trend series and random fluctuations about this trend. Two experiments were carried out respectively on the electricity demand and energy production from 1984 to 2006 in China to demonstrate the effectiveness of our approach. Furthermore, this improved grey forecasting model was used to forecast China's electricity demand and energy production, which shows that the modified forecasting model is more reliable and has a higher forecast accuracy than the GM(1,1). The forecasted results indicate that China's final energy demand will increase rapidly in the period 2007-2015. The results provide scientific basis for the planned development of energy supply in China.