Energy Demand Models for Policy Formulation

Policy Research Working Paper

WPS4866 4866

Energy Demand Models for Policy Formulation

A Comparative Study of Energy Demand Models

Subhes C. Bhattacharyya Govinda R. Timilsina

The World Bank Development Research Group Environment and Energy Team March 2009

Policy Research Working Paper 4866

Abstract

This paper critically reviews existing energy demand forecasting methodologies highlighting the methodological diversities and developments over the past four decades in order to investigate whether the existing energy demand models are appropriate for capturing the specific features of developing countries. The study finds that two types of approaches, econometric and end-use accounting, are used in the existing energy demand models. Although energy demand models have greatly evolved since the early 1970s, key issues such as the poor-rich and urban-rural divides, traditional energy resources, and differentiation between commercial and non-commercial energy

commodities are often poorly reflected in these models. While the end-use energy accounting models with detailed sector representations produce more realistic projections compared with the econometric models, they still suffer from huge data deficiencies especially in developing countries. Development and maintenance of more detailed energy databases, further development of models to better reflect developing country context, and institutionalizing the modeling capacity in developing countries are the key requirements for energy demand modeling to deliver richer and more reliable input to policy formulation in developing countries.

This paper--a product of the Environment and Energy Team, Development Research Group--is part of a larger effort in the department to study climate change and clean energy issues. Policy Research Working Papers are also posted on the Web at . The author may be contacted at gtimilsina@.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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Energy Demand Models for Policy Formulation: A Comparative Study of Energy Demand Models

Subhes C. Bhattacharyya CEPMLP, Dundee University

Govinda R. Timilsina* Development Research Group

The World Bank

Key words: Energy demand forecasting methods; Energy demand forecasting models; energy policy, developing countries

* Corresponding author, email gtimilsina@. We sincerely thank Carol Dahl, Toshihiko Nakata, John Allen Rogers, Mike Toman and Craig Meisner for their insightful comments. The views expressed in this paper are those of the authors only, and do not necessarily represent the World Bank and its affiliated organizations. The Knowledge for Change Program (KCP) Trust Fund provided financial support to this study.

Energy demand models for policy formulation

Table of Contents Table of Contents................................................................................................................ 2 List of tables........................................................................................................................ 3 List of figures...................................................................................................................... 4 List of boxes........................................................................................................................ 5 Acronyms and Definitions .................................................................................................. 6 1. Introduction..................................................................................................................... 8 2. Energy Demand Modeling Issues from Developing Countries' Perspective ............... 11

2.1 Specific features of developing countries ............................................................... 11 2.2 Considerations for energy demand modeling ......................................................... 14 3. Understanding Energy Demand.................................................................................... 16 3.1 Economic foundations of energy demand............................................................... 17

3.1.1 Household energy demand............................................................................... 17 3.1.2 Industrial and commercial energy demand ...................................................... 19 3.1.3 Transport energy demand ................................................................................ 20 3.2 Energy demand forecasting techniques .................................................................. 24 3.2.1 Simple approaches ........................................................................................... 25 3.2.2 Sophisticated approaches ................................................................................. 28 4. Energy demand modeling in practice ........................................................................... 42 4.1 Aggregate energy demand forecasting.................................................................... 42 4.1.1 Primary energy demand forecasting ................................................................ 43 4.1.2 Sector or fuel-level aggregate studies .............................................................. 47 4.2 Energy demand forecasting at the sector level ....................................................... 49 4.2.1 Industrial energy demand................................................................................. 49 4.2.2 Transport energy demand ................................................................................ 59 4.2.3 Residential demand.......................................................................................... 69 4.2.4 Commercial sector ........................................................................................... 75 5. Features of Specific Energy Demand Forecasting Models........................................... 76 5.1 Brief descriptions of selected energy demand models............................................ 77 5.1.1 Country-specific models .................................................................................. 77 5.1.2 Generic energy forecasting models.................................................................. 82 5.1.3 Energy forecasting as part of an integrated model.................................... 85 5.2 Comparison of selected energy demand models..................................................... 89 6. Policy Implications for Developing Countries ............................................................. 93 7. Concluding Remarks..................................................................................................... 96 References......................................................................................................................... 98 Appendix 1: Review of Energy System Models............................................................. 123 A1.1 Evolution............................................................................................................ 123 A1.2 Categorisation .................................................................................................... 127 A1.3 Model comparison.............................................................................................. 129 A1.3.1 Model description ....................................................................................... 129 A1.4 Model comparison.............................................................................................. 144

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Energy demand models for policy formulation

List of tables

Table 1: Examples of end-use models .............................................................................. 34 Table 2: Usual disaggregation of the industrial sector...................................................... 55 Table 3: Energy end-use models for industrial energy demand analysis.......................... 56 Table 4: Disaggregation of the transport sector in end-use studies .................................. 66 Table 5: Demand drivers of DTI model............................................................................ 78 Table 6: Comparison of actual demand with projected demand for the UK (Mtoe) ........ 78 Table 7: Demand representation in NEMS....................................................................... 79 Table 8: Comparison of energy demand forecasting models............................................ 91 Table A1.1: Classification of energy-economy models.................................................. 128 Table A1.2: MARKAL family........................................................................................ 132 Table A1.2: Comparison of models by modelling approaches....................................... 146 Table A1.3: Comparison of bottom-up models .............................................................. 148 Table A1.4: Comparison of hybrid models..................................................................... 149

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