Joint SPC-APEC - PowerPoint Presentation

Slide1

Joint SPC-APEC

Regional Workshop on Energy Statistics and Modeling for the SDG7 and the COP21 INDC Energy Targets

14-18 March 2016Nuku’alofa, Kingdom of TongaIntroduction to Economic/Socio-economic Data and their Relation to Energy ConsumptionEdito BarcelonaEnergy Statistics and Training OfficeAsia Pacific Energy Research Centre

Session 3-CSlide2

The Reference Energy SystemSlide3

Need of forecasting Energy Demand

Energy is

a driver of economic activities

Thus energy should be used wiselyFor this, countries need to have plans for their future energy use and supplyModels have been used to forecast energy demand and to estimate supply to meet these demandThe most common approach is econometric modeling which links energy demand with socio-economic activitiesSlide4

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 equationSlide5

Final Demand

Industry / Residential & Commercial / Transport

Conversion SectorElectricity / Oil Refineries/Gas PlantsPrimary Energy DemandMacro-Economic ModelGDP components/ energy price/industrial activitiesModel StructureSlide6

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)whereE: Energy DemandY: IncomePe: Energy PriceCPI: Consumer Price IndexPe/CPI: Relative priceE-1: Energy Demand at previous periodSlide7

Energy Demand Modeling

Formulation of theoretical demand model

e.g.: Y = f(X

1, X2, X3)Estimation: to measure quantitative relation among key variablesY = α + β1 X1 + β2 X2 + β3X3 + u => Given historical Xi and Y

estimate

α

^

and

β

i

^

Projection:

Given

α

^

,

β

i

^

and future

values

of

X

i

,

get future value of Y

*

Example: Y is energy demand, X

1

is GDP, X

2

is Price,

X

3

is Lag variableSlide8

Regression Analysis

Issue

: how to estimate the parameters α and βMethod of OLS (Ordinary Least Squares)

Minimize the sum of squared residuals: minui^2= (yi- α^- β^xi) ^2Key Assumptions for OLS to be ValidZero conditional mean: E(u/x) = 0Homoskedasticity: Var(u/x) = constant, no heteroskedasticity and serial correlation (autocorrelation) of error termsSlide9

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 XLog-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

XSlide10

Procedure in Estimation & Forecast

1. Start with

established facts or economic theories

2. Analyze historical data3. Identify explanatory variables4. Specify the model and test it 5. Check the fitted values.6. If not “good-fit”. Re-

test

with other

variable

s

7. Select the “good-fit” and use for forecastingSlide11

Economic Activity

Indicators

Industry sector: Index of Industrial Production (IIP) by sub-sectors, amounts of production by

sub-sectors likes tons of steel, cement, pulp, paper, etcTransport sector: Number of vehicles, transport demand such passenger-kms or ton-kms of freight, etcResidential sector: Number of households, per capita income, number of appliances, etcCommercial sector: Area of office building, private consumption, GDP of services, etcSlide12

Prices

Primary

energyCrude Oil Coal price

Gas priceSecondary energyPetroleum productsElectricitySlide13

Estimation of Final Energy Demand

Industry Sector:

Coal: Coking coal, Steam coal, Sub-bituminous coal and LigniteOil: LPG, Naphtha, Kerosene, Diesel and Fuel oilGas: Natural Gas, Coal gas and petroleum gasElectricity

New and renewable energySlide14

Estimation of Final Energy Demand

Transport Sector

:Road: LPG, Gasoline, Diesel, Natural gas and Electricity

Rail: Coal, Diesel and ElectricityAir: Aviation gasoline and Jet keroseneInland waterways: Gasoline, Diesel and Fuel oilSlide15

Estimation of Final Energy Demand

Other Sector: Residential: LPG, Kerosene, Natural Gas and Electricity

Commercial: LPG, Kerosene,

Diesel, Fuel Oil, Natural Gas and Electricity Slide16

www.ieej.or.jp/egeda/

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Thank you for your attention