Energy Economics ECO-4420 Lecture 7 Understanding Energy Demand Asst. Prof. Dr. Istemi Berk istemi.berk@deu.edu.tr 1
Understanding Energy Demand Why do we need to? Consumers: price trends of different fuels before purchasing decision. Ex: diesel fueled vs. gasoline fueled cars 2
Understanding Energy Demand Why do we need to? Consumers: price trends of different fuels before purchasing decision. Ex: diesel fueled vs. gasoline fueled cars Electric utilities (generators) or TSOs: consumption patterns to meet peak load 3
Understanding Energy Demand Why do we need to? Consumers: price trends of different fuels before purchasing decision. Ex: diesel fueled vs. gasoline fueled cars Electric utilities (generators) or TSOs: consumption patterns to meet peak load Oil refineries and oil producers: consumption forecasts to invest in supply and infrastructure 4
Understanding Energy Demand Why do we need to? Consumers: price trends of different fuels before purchasing decision. Ex: diesel fueled vs. gasoline fueled cars Electric utilities (generators) or TSOs: consumption patterns to meet peak load Oil refineries and oil producers: consumption forecasts to invest in supply and infrastructure Policy makers: how consumers respond to different policies to optimize energy system in carbon constrained world 5
Energy Information What is needed and Why? What kind of information? 1. Energy use by various economic activities (sectoral analysis) 2. Energy production and delivery to end-users 3. Technical and operating statistics of plants 4. Financial and cost information 5. Macroeconomic and social indicators 6
Why? 1. Energy pricing 2. Energy investments 3. Energy R&D Energy Information What is needed and Why? 4. System management (ex: TSOs) 5. Contingency plan emergency 6. Long-term planning Where do we get the necessary information? 7
Energy Accounting Energy Flow 8
Energy Accounting Energy Balance Energy Balance matrix: Columns: Different Fuel Types Rows: Flow of energy (accounting items) 9
10
accounting items in detail Energy Accounting Energy Balance 11
Energy Accounting Energy Balance Energy Balance matrix: Columns: Different Fuel Types Rows: Flow of energy (accounting items) For Turkey for instance: http://www.dektmk.org.tr/upresimler/2015denge.xlsx 12
Energy Accounting Energy Balance What do we learn from accounting items? 1. Energy supply mix: different shares of energy sources in PEC 2. Self-reliance in supply vs. import dependency 3. Share of renewables in supply 4. Efficiency of electricity generation: how much fuel we used vs. how much electricity we got 5. Power generation mix 6. Refinery efficiency: how much crude oil we used vs. how much products we got 7. Per capita consumption of energy (primary and secondary) 8. Consumption of different sectors 9. Energy intensity: ratio of energy consumption to GDP 13
Energy Accounting Alternative Representation of Energy Balance 14
Energy Demand Households vs. Industry Energy Demand Industry (Intermediate Good) Households (Final Good) Input in the production function Y=F(K,L,E) Good in the Utility function U=U(C,E) 15
Energy Demand Households vs. Industry Energy Demand Industry (Intermediate Good) Households (Final Good) Input in the production function Y=F(K,L,E) Good in the Utility function U=U(C,E) 16
Industrial Energy Use Sectoral Analysis 17
Household Energy Use Disaggregated Analysis (US data) 18
Modeling Energy Demand Households, Firms and Macroeconomy 3 types of models Household Consumer Choice Model max U=U(C,E) s.t. I=Pe.E+Pc.C Firms Cost minimization Model Q=f(K,L,E) min TC=rK+wL+Pe.E s.t. Q=f(K,L,E) Macroeconomic Model energy in aggregate production function Y=F(E, Other inputs) BOARD 19
Energy Intensity Definition Energy Intensity (EI): energy input per unit of output Industry output Macroeconomic output - GDP EI = Energy Input/Aggregate Output(GDP) Energy intensity varies over industries and countries 20
Energy Intensity Cross Industry Analysis 21
Energy Intensity Cross Country Analysis 22
Energy Intensity Over Time 23
Energy Intensity (BTU/GDP) Energy Intensity Comparison: Germany vs. Turkey 7000 Germany 6500 Turkey 6000 5500 5000 4500 BOARD 4000 1990 1995 2000 2005 2010 Year 24
Reverse of energy intensity; Energy Efficiency Definition Energy Efficiency = unit of output / energy input Energy efficiency is a way of managing and restraining the growth in energy consumption. Something is more energy efficient if it delivers more services for the same energy input, or the same services for less energy input. (EIA) 25
Energy Efficiency Countries 26
Energy Efficiency Dynamics Increasing energy efficiency; Reducing energy dependency - Security of supply Meeting sustainability criteria (most consumed sources are fossil fuels) Increasing Energy Efficiency Less energy input! Governmental intervention tax? Does it work? Technolocial progress BOARD 27
Remember Jevon s Paradox Energy Efficiency Rebound Effect 28
Energy Efficiency Rebound Effect Consumers 29
Energy Efficiency Rebound Effect Producers 30
End of Lecture See you next week Asst. Prof. Dr. Istemi Berk istemi.berk@deu.edu.tr 31