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Session 3-C
Joint SPC-APEC Regional Workshop on Energy Statistics and Modeling
for the SDG7 and the COP21 INDC Energy Targets
14-18 March 2016
Nuku’alofa, Kingdom of Tonga
Introduction to Economic/Socio-economic Data
and their Relation to Energy Consumption
Edito Barcelona
Energy Statistics and Training Office
Asia Pacific Energy Research Centre
The Reference Energy System
RESOURCES
PROCESSES
IMPORT
GENERATION
ENERGY SERVICES
ELECTRICITY
REFINERIES
END-USE
D
E
M
A
N
D
HEAT
FUEL
PROCESSING
MINING
STOCKS
EMISSION
CONTROLS
EXPORT
DEVICES
Need of forecasting Energy Demand
• Energy is a driver of economic activities
• Thus energy should be used wisely
• For this, countries need to have plans for their
future energy use and supply
• Models have been used to forecast energy
demand and to estimate supply to meet these
demand
• The most common approach is econometric
modeling which links energy demand with
socio-economic activities
Energy and Economy
• Energy consumption and economic activity
are known to be correlated although the
relationship is not necessarily absolute.
• Energy is a required input for economic
activity
• Relationship between energy and the
economy can be expressed in a mathematical
equation
Model Structure
Macro-Economic Model
GDP components/ energy price/industrial activities
Final Demand
Industry / Residential & Commercial / Transport
Conversion Sector
Electricity / Oil Refineries/Gas Plants
Primary Energy Demand
Econometric Demand Function
• Top down approach
• Linking macro-economic model with energy model
• Demand functions such as:
E = f(Y, Pe/CPI) or E = f(Y, Pe/CPI, E-1)
where
E: Energy Demand
Y: Income
Pe: Energy Price
CPI: Consumer Price Index
Pe/CPI: Relative price
E-1: Energy Demand at previous period
Energy Demand Modeling
Formulation of theoretical demand model
e.g.: Y = f(X1, X2, X3)
Estimation: to measure quantitative relation among
key variables
Y = α + β1 X1 + β2 X2 + β3X3 + u => Given historical Xi and Y
estimate α^ and βi^
Projection:
Given α^, βi^ and future values of Xi, get future value of Y
* Example: Y is energy demand, X1 is GDP, X2 is Price, X3 is Lag variable
Regression Analysis
• Issue: how to estimate the parameters α and β
• Method of OLS (Ordinary Least Squares)
Minimize the sum of squared residuals:
minui^2= (yi- α^- β^xi) ^2
• Key Assumptions for OLS to be Valid
• Zero conditional mean: E(u/x) = 0
• Homoskedasticity: Var(u/x) = constant, no heteroskedasticity and serial
correlation (autocorrelation) of error terms
Forms of Regression Functions
 Level-Level
Form
- Y = α + β X + U => Interpret: ΔY = β Δ X
- Y = α + β1 X + β2 X2 + U => Interpret: ΔY = (β1 + 2 β2
X)Δ X
 Log-Log
Form: elasticity of Y w.r.t. X
- log Y = α + β log X + U => Interpret: %ΔY = β %Δ X
 Log-Level
Form: semi-elasticity of Y w.r.t. X
- log Y = α + β X + U => Interpret: %ΔY = (100*β) Δ X
 Level-Log
Form: not frequently used
- Y = α + β log X + U => Interpret: ΔY = (β/100)% Δ X
Procedure in Estimation & Forecast
1. Start with established facts or economic
theories
2. Analyze historical data
3. Identify explanatory variables
4. Specify the model and test it
5. Check the fitted values.
6. If not “good-fit”. Re-test with other variables
7. Select the “good-fit” and use for forecasting
Economic Activity Indicators
• Industry sector: Index of Industrial Production (IIP)
by sub-sectors, amounts of production by subsectors likes tons of steel, cement, pulp, paper, etc
• Transport sector: Number of vehicles, transport
demand such passenger-kms or ton-kms of freight,
etc
• Residential sector: Number of households, per
capita income, number of appliances, etc
• Commercial sector: Area of office building, private
consumption, GDP of services, etc
Prices
• Primary energy
• Crude Oil
• Coal price
• Gas price
• Secondary energy
• Petroleum products
• Electricity
Estimation of Final Energy Demand
• Industry Sector:
• Coal: Coking coal, Steam coal, Sub-bituminous
coal and Lignite
• Oil: LPG, Naphtha, Kerosene, Diesel and Fuel oil
• Gas: Natural Gas, Coal gas and petroleum gas
• Electricity
• New and renewable energy
Estimation of Final Energy Demand
• Transport Sector:
• Road: LPG, Gasoline, Diesel, Natural gas and
Electricity
• Rail: Coal, Diesel and Electricity
• Air: Aviation gasoline and Jet kerosene
• Inland waterways: Gasoline, Diesel and Fuel
oil
Estimation of Final Energy Demand
• Other Sector:
• Residential: LPG, Kerosene, Natural Gas and
Electricity
• Commercial: LPG, Kerosene, Diesel, Fuel Oil,
Natural Gas and Electricity
Thank you for your attention
www.ieej.or.jp/egeda/
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