INDUSTRIAL DEMAND MODULE

The industrial demand module (IDM) forecasts energy consumption for fuels and feedstocks for 9 manu-facturing industries and 6 nonmanufacturing industries, subject to delivered prices of energy and macroeconomic variables representing the value of output for each industry. The module includes industrial cogeneration of electricity that is either used in the industrial sector or sold to electric utilities. The IDM structure is shown in Figure 7.

Industrial energy demand is projected as a combination of "bottom up" characterizations of the energy-using technology and "top down" econometric estimates of behavior. The influence of energy prices on industrial energy consumption is modeled in terms of the efficiency of use of existing capital, the efficiency of new capital acquisitions, and the mix of fuels utilized, given existing capital stocks. Energy conservation from technological change is represented over time by trend-based "technology possibility curves." These curves represent the aggregate efficiency of all new technologies that are likely to penetrate the future markets as well as the aggregate improvement in efficiency of 1991 technology.

The IDM incorporates three major industry categories: energy-intensive manufacturing industries, non-energy-intensive manufacturing industries, and nonmanufac-turing industries. The level and type of modeling and the attention to detail is different for each. Manufacturing disaggregation is at the 2-digit Standard Industrial Classification (SIC) level, with some further disaggregation of more energy-intensive or large energy-consuming industries. Industries treated in more detail include food, paper, chemicals, glass, cement, steel, and aluminum. Energy product demands are calculated independently for each industry.

Each industry is modeled (where appropriate) as three interrelated components: buildings (BLD), boilers/ steam/cogeneration (BSC), and process/ assembly (PA) activities. Buildings are estimated to account for 3 percent of energy consumption in manufacturing industries (in nonmanufacturing industries, building energy consumption is assumed to be negligible).

Consequently, the IDM uses a simple modeling approach for the BLD component. Energy consumption in industrial buildings is assumed to grow at the same rate as employment in that industry. The BSC component consumes energy to meet the steam demands from the other two components and to provide internally generated electricity to the BLD and PA components. The boiler component consumes fossil fuels to produce steam, which is passed to the PA component. Parameter estimates for the cogeneration component are based on regression from a panel of pooled time-series and cross-sectional data. The IDM models cogeneration based on steam demand from the BLD and the PA components and represents planned "traditional" cogeneration units based on data from the Form EIA-867, "Annual Nonutility Power Producer Report." The "nontraditional" cogeneration units are represented in the electricity market module since these units are mainly grid-serving, electricity-price-driven entities.

The PA component accounts for the largest share of direct energy consumption for heat and power, 53 percent. For the seven most energy-intensive industries, process steps or end uses are modeled using engineering concepts. The production process is decomposed into the major steps, and the energy relationships among the steps are specified.

The energy intensities of the process steps or end uses vary over time, both for existing technology and for technologies expected to be adopted in the future. In the IDM, this variation is based on engineering judgment and is reflected in the parameters of technology possibility curves, which show the declining energy intensity of existing and new capital relative to the 1991 stock.

The IDM uses "technology bundles" to characterize technological change in the energy-intensive industries. These bundles are defined for each production process step for five of the industries and for end use in two of the industries. The process step industries are pulp and paper, glass, cement, steel, and aluminum. The end-use industries are food and bulk chemicals.

The unit energy consumption is defined as the energy use per ton of throughput at a process step or as energy use per dollar of output for the end use industries. The "Existing UEC" is the current average installed intensity as of 1991. The "New 1991 UEC" is the intensity expected to prevail for a new installation in 1991. Similarly, the "New 2015 UEC" is the intensity expected to prevail for a new installation in 2015. For intervening years, the intensity is interpolated. The same implied rate of change is also applied through 2020.

The rate at which the average intensity declines is determined by the rate and timing of new additions to capacity. In the current IDM, the rate and timing of new additions are functions of retirement rates and industry growth rates.

The IDM uses a vintaged capital stock accounting framework that models energy use in new additions to the stock and in the existing stock. This capital stock is represented as the aggregate vintage of all plants built within an industry and does not imply the inclusion of specific technologies or capital equipment.

The capital stock is grouped into three vintages: old, middle, and new. The old vintage consists of capital in production prior to 1991, which is assumed to retire at a fixed rate each year. Middle-vintage capital is that added after 1990, excluding the year of the forecast. New production capacity is built in the forecast years when the capacity of the existing stock of capital in the IDM cannot produce the output forecasted by the NEMS regional subcomponent of the macroeconomic activity module. Capital additions during the forecast horizon are retired in subsequent years at the same rate as the pre-1990 capital stock.

The energy-intensive and/or large energy-consuming industries are modeled with a structure that explicitly describes the major process flows or "stages of production" in the industry (some industries have major consuming uses).

Technology penetration at the level of major processes in each industry is based on a technology penetration curve relationship. A second relationship can provide additional energy conservation resulting from increases in relative energy prices. Major process choices (where applicable) are determined by industry production, specific process flows, and exogenous assumptions.

The IDM achieves fuel switching by application of a logit function methodology for estimating fuel shares in the boilers/steam/cogeneration component. Additional fuel switching capability takes place within the non-energy-intensive manufacturing sector through the application of the translog function methodology for estimating fuel shares.

Recycling, waste products, and byproduct consumption are modelled using parameters based on off-line analysis and assumptions about the manufacturing processes or technologies applied within industry. These analyses and assumptions are mainly based upon environmental regulations such as government requirements about the share of recycled paper used in offices. The IDM also accounts for trends within industry toward the production of more specialized products such as specialized steel which can be produced using scrap material versus raw iron ore.

TO:Transportation Demand Module
National Energy Modeling System: An Overview

File last modified: April 22, 1999

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