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Assumption to the Annual Energy Outlook Industrial Demand Module
The NEMS Industrial Demand Module estimates energy consumption by energy source (fuels and feedstocks) for 9 manufacturing and 6 nonmanufacturing industries. The manufacturing industries are further subdivided into the energy-intensive manufacturing industries and nonenergy-intensive manufacturing industries. The manufacturing industries are modeled through the use of a detailed process flow or end use accounting procedure, whereas the nonmanufacturing industries are modeled with substantially less detail (Table 17). The Industrial Demand Module forecasts energy consumption at the four Census region level (see Figure 5); energy consumption at the Census Division level is estimated by allocating the Census region forecast using the SEDS26 data. The energy-intensive industries (food and kindred products, paper and allied products, bulk chemicals, glass and glass products, hydraulic cement, blast furnace and basic steel products, and aluminum) are modeled in considerable detail. Each industry is modeled as three separate but interrelated components consisting of the Process Assembly (PA) Component, the Buildings Component (BLD), and the Boiler/Steam/Cogeneration (BSC) Component. The BSC Component satisfies the steam demand from the PA and BLD Components. In some industries, the PA Component produces byproducts that are consumed in the BSC Component. For the manufacturing industries, the PA Component is separated into the major production processes or end uses. Petroleum refining (North American Industry Classification System 32411) is modeled in detail in the Petroleum Market Module of NEMS, and the projected energy consumption is included in the manufacturing total. Forecasts of refining energy use, and lease and plant fuel and fuels consumed in cogeneration in the oil and gas extraction industry (North American Industry Classification System 211) are exogenous to the Industrial Demand Module, but endogenous to the NEMS modeling system. Key Assumptions The NEMS Industrial Demand Module primarily uses a bottom-up process modeling approach. An energy accounting framework traces energy flows from fuels to the industry’s output. An important assumption in the development of this system is the use of 1998 baseline Unit Energy Consumption (UEC) estimates based on analysis of the Manufacturing Energy Consumption Survey (MECS) 1998.27 The UECs represent the energy required to produce one unit of the industry’s output. The output may be defined in terms of physical units (e.g., tons of steel) or in terms of the dollar value of shipments. The module depicts the manufacturing industries (apart from petroleum refining, which is modeled in the Petroleum Market Module of NEMS) with a detailed process flow or end use approach. The dominant process technologies are characterized by a combination of unit energy consumption estimates and “technology possibility curves.” The technology possibility curves indicate the energy intensity of new and existing stock relative to the 1998 stock over time. Rates of energy efficiency improvement assumed for new and existing plants vary by industry and process. These assumed rates were developed using professional engineering judgments regarding the energy characteristics, year of availability, and rate of market adoption of new process technologies. Process/Assembly Component The PA Component models each major manufacturing production step or end use for the manufacturing industries. The throughput production for each process step is computed as well as the energy required to produce it. Within this component, the UECs are adjusted based on the technology possibility curves for each step. For example, state-of-the-art additions to waste fiber pulping capacity in 1998 are assumed to require only 93 percent as much energy as does the average existing plant (Table 18). The technology possibility curve is a means of embodying assumptions regarding new technology adoption in the manufacturing industry and the associated increased energy efficiency of capital without characterizing individual technologies. To some extent, all industries will increase the energy efficiency of their process and assembly steps. The reasons for the increased efficiency are not likely to be directly attributable to changing energy prices but due to other exogenous factors. Since the exact nature of the technology improvement is too uncertain to model in detail, the module employs a technology possibility curve to characterize the bundle of technologies available for each process step. Fuel shares for process and assembly energy use in the manufacturing industries28 are adjusted for changes in relative fuel prices. In each industry, two logit fuel-sharing equations are applied to revise the initial fuel shares obtained from the process-assembly component. The resharing does not affect the industry’s total energy use, only the fuel shares. The methodology adjusts total fuel shares across all process stages and vintages of equipment to account for aggregate market response to changes in relative fuel prices. The fuel share adjustments are done in two stages. The first stage determines the fuel shares of electricity and nonelectric energy. (The non-electric energy group excludes boiler fuel and feedstocks.) The second stage determines the fossil fuel shares of nonelectric energy. In each stage, a new fuel-group share, NEWSHRi, is established as a function of the initial, default fuel-group shares, DEFLTSHRj and fuel-group prices indices, PRCRATi. The DEFLTSHRi are the base year shares. The price indices are the ratio of the current year price to the base year price, in real dollars. The form of the equation results in unchanged fuel shares when the price indices are all 1, or unchanged from their 1998 levels. The implied own-price elasticity of demand is about -0.1. Byproducts produced in the PA Component serve as fuels for the BSC Component. In the industrial module, byproducts are assumed to be consumed before purchased fuel. Machine drive electricity consumption in the food, bulk chemicals, metal-based durables, and balance of manufacturing sectors is calculated by a motor stock model. The beginning stock of motors is modified over the forecast horizon as motors are added to accommodate growth in shipments for each sector, as motors are retired and replaced, and as failed motors are rewound. When an old motor fails, an economic choice is made on whether to repair or replace the motor. When a new motor is added, either to accommodate growth or as a replacement, an economic choice is made between purchasing a motor which meets the EPACT minimum for efficiency or a premium efficiency motor. Table 19 provides the beginning stock efficiency for seven motor size groups in each of the four industries, as well as efficiencies for EPACT minimum and premium motors. There is no premium motor option for the largest size group because the Motor Master database does not provide characteristics for premium motors larger than 350 horsepower.29 As the motor stock changes over the forecast horizon, the overall efficiency of the motor population changes as well. Buildings Component The total buildings energy demand by industry for each region is a function of regional industrial employment and output. Building energy consumption was estimated for building lighting, hvac (heating,ventilation, and air conditioning), facility support, and onsite transportation. Space heating was further divided to estimate the amount provided by direct combustion of fossil fuels and that provided by steam (Table 20). Energy consumption in the BLD Component for an industry is estimated based on regional employment and output growth for that industry. Boiler/Steam/Combined Heat and Power Component The steam demand and byproducts from the PA and BLD Components are passed to the BSC Component, which applies a heat rate and a fuel share equation (Table 21) to the boiler steam requirements to compute the required energy consumption. The boiler fuel shares apply only to the fuels that are used in non-combined heat and power (CHP) boilers. The portion of the steam demand that is met with cogenerated steam reduces the amount of boiler fuel that would otherwise be required. The non-CHP boiler fuel shares are calculated using a logit formulation. The equation is calibrated to 1998 so that the actual boiler fuel shares are produced for the relative prices that prevailed in 1998. The byproduct fuels are consumed before the quantity of purchased fuels is estimated. The boiler fuel shares are based on the 1998 MECS.30 Combined Heat and Power Combined heat and power (CHP) plants, which are designed to produce electricity and useful heat, have been used in the industrial sector for many years. The CHP estimates in the module are based on the assumption that the historical relationship between industrial steam demand and CHP will continue in the future. In 2002, EIA comprehensively reviewed and revised how it collects, estimates, and reports fuel use for facilities producing electricity. The review addressed both inconsistent reporting of the fuels used for electric power across historical years and changes in the electric power marketplace that have been inconsistently represented in various EIA survey forms and publications. These changes were first reflected in the Annual Energy Review 2001, DOE/EIA-0384(2001), (Washington, DC, November 2002), and are discussed in detail in Appendix H of that publication.
The projection for additions to fossil-fueled cogeneration is based on assessing capacity that could be added to generate the industrial steam requirements that are not already met by existing CHP. The technical potential for onsite CHP is primarily based on supplying thermal requirements. Capacity additions are then determined by the interaction of payback periods and market penetration rates. Installed cost for the cogeneration systems is given in Table 22. Technology The amount of energy consumption reported by the industrial module is also a function of the vintage of the capital stock that produces the output. It is assumed that new vintage stock will consist of state-of-the-art technologies that are more energy efficient than the average efficiency of the existing capital stock. Consequently, the amount of energy required to produce a unit of output using new capital stock is less than that required by the existing capital stock. Capital stock is grouped into three vintages: old, middle, and new. The old vintage consists of capital in production prior to 1999 and is assumed to retire at a fixed rate each year (Table 23). Middle vintage capital is that which is added after 1998 but not including 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 industrial model cannot produce the output projected by the NEMS Regional Macroeconomic Model. Capital additions during the forecast horizon are retired in subsequent years at the same rate as the pre-1999 capital stock. The energy intensity of the new capital stock relative to 1998 capital stock is reflected in the parameter of the technology possibility curve estimated for the major production steps for each of the energy-intensive industries. These curves are based on engineering judgment of the likely future path of energy intensity changes (Table 20). The energy intensity of the existing capital stock also is assumed to decrease over time, but not as rapidly as new capital stock. The net effect is that over time the amount of energy required to produce a unit of output declines. Although total energy consumption in the industrial sector is projected to increase, overall energy intensity is projected to decrease. Legislation Energy Policy Act of 1992 (EPACT) EPACT contains several implications for the industrial module. These implications concern efficiency standards for boilers, furnaces, and electric motors. The industrial module uses heat rates of 1.25 (80 percent efficiency) and 1.22 (82 percent efficiency) for gas and oil burners respectively. These efficiencies meet the EPACT standards. EPACT mandates minimum efficiencies for all motors up to 200 horsepower purchased after 1998. The choices offered in the motor model are all at least as efficient as the EPACT minimums. Clean Air Act Amendments of 1990 (CAAA90) The CAAA90 contains numerous provisions that affect industrial facilities. Three major categories of such provisions are as follows: process emissions, emissions related to hazardous or toxic substances, and SO2 emissions. Process emissions requirements were specified for numerous industries and/or activities (40 CFR 60). Similarly, 40 CFR 63 requires limitations on almost 200 specific hazardous or toxic substances. These specific requirements are not explicitly represented in the NEMS industrial model because they are not directly related to energy consumption projections. Section 406 of the CAAA90 requires the Environmental Protection Agency (EPA) to regulate industrial SO2 emissions at such time that total industrial SO2 emissions exceed 5.6 million tons per year (42 USC 7651). Since industrial coal use, the main source of SO2 emissions, has been declining, EPA does not anticipate that specific industrial SO2 regulations will be required (Environmental Protection Agency, National Air Pollutant Emission Trends: 1990-1998, EPA-454/R-00-002, March 2000, Chapter 4). Further, since industrial coal use is not projected to increase, the industrial cap is not expected be a factor in industrial energy consumption projections. High Technology, 2004 Technology, Advanced Nuclear, and High Renewables Cases The high technology case assumes earlier availability, lower costs, and higher efficiency for more advanced equipment. (Table 24)31The high technology case also assumes that the rate at which biomass byproducts will be recovered from industrial processes increases from 0.1 percent per year to 1.0 percent per year. The availability of additional biomass leads to an increase in biomass-based cogeneration. Changes in aggregate energy intensity result both from changing equipment and production efficiency and from changes in the composition of industrial output. Since the composition of industrial output remains the same as in the reference case, primary energy intensity declines by 1.5 percent annually compared with the reference case, in which primary energy intensity is projected to decline 1.3 percent annually. The 2004 technology case holds the energy efficiency of plant and equipment constant at the 2004 level over the forecast. Both cases were run with only the Industrial Demand Module rather than as a fully integrated NEMS run, (i.e., the other demand models and the supply models of NEMS were not executed). Consequently, no potential feedback effects from energy market interactions were captured. AEO2004 also analyzed an integrated high technology case (consumption high technology), which combines the high technology cases of the four end-use demand sectors, the electricity high fossil technology case, the advanced nuclear case, and the high renewables case. The high renewables case assumes that the rate at which biomass byproducts will be recovered from industrial processes increases from 0.1 percent per year to 1.0 percent per year. The availability of additional biomass leads to an increase in biomass-based CHP.
Released: February 2004 |
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