WPS4866 POLICY RESEARCH WORKING PAPER 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 commodities are often poorly reflected in these models. demand forecasting methodologies highlighting the While the end-use energy accounting models with methodological diversities and developments over detailed sector representations produce more realistic the past four decades in order to investigate whether projections compared with the econometric models, the existing energy demand models are appropriate they still suffer from huge data deficiencies especially in for capturing the specific features of developing developing countries. Development and maintenance of countries. The study finds that two types of approaches, more detailed energy databases, further development of econometric and end-use accounting, are used in the models to better reflect developing country context, and existing energy demand models. Although energy institutionalizing the modeling capacity in developing demand models have greatly evolved since the early countries are the key requirements for energy demand 1970s, key issues such as the poor-rich and urban-rural modeling to deliver richer and more reliable input to divides, traditional energy resources, and differentiation policy formulation in developing countries. between commercial and non-commercial energy 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 http://econ.worldbank.org. The author may be contacted at [email protected]. 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. Produced by the Research Support Team 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 [email protected]. 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 2 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....................................................................