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The medee models for long term energy demand forecasting
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THE MEDEE MODELS FOR LONG TERM ENERGY DEMAND FORECASTING B. LAPILLONNE Institut
!&onomique
et Juridique
de I’I?nergie,
and B. CHATEAU BP 47 X-Centre
(Received 20
May
de Tri, 38040 Grenoble-Cedex.
France
1980)
Abstract-Energy demand forecasting is increasingly faced with a contradiction. On one hand, it is becoming necessary to forecast energy demand over a longer time horizon to take into account increased construction time for energy production equipment (e.g. nuclear plant) and in line with the increasing need to take into account the social and economic impacts of energy system development when defining energy strategies. On the other hand, the increasing uncertainties in the evolution of energy prices and, particularly, of the economy and its structures together with the increased rapidity of changes in those fields require that time horizons are shortened within which one can reasonably use the traditional tools of energy demand forecasting (and, in particular, econometric models). The fourfold increase in oil prices in late 1973 and the crisis which has affected most of the industrialized countries since then have stressed this contradiction and have reinforced the necessity of defining new approaches in handfing the issue of long-term energy demand evolution. The approach presented in this paper is the result of five year5 research at Institut &onomique et Juridique de I’finergie (IEJE) in Grenoble (France). It is based first upon a comprehensive description, by means of a scenario, of the long term evolution of the socio-economic system, with a particular emphasis on its energy related aspects, and secondly on a simulation model-MEDEE-which permits to evaluate the energy demand associated to the scenario. The first part of this paper is devoted to a general description of the approach and the philosophy behind its development; the second part presents the type of applications that can be envisaged with MEDEE and gives a brief overview of the studies already carried out.
1. THE MEDEE APPROACH
The need for new long term ener,y demand forecasting methods The main methods used until now for energy demand forecasting were designed in a relatively stable energy and economic context, dominated by the following characteristics: l steady economic growth: 0 low energy prices compared to other production factors, with even a siightly declining price trend; 0 a strongly partitioned energy market, especially between conventional fuels and electricity, permitting separate forecasts for these two energy commodities. This relative stability partly explains the success of econometric forecasting methods. Because everything was changing slowly and steadily, it was almost justifiable to assume that the econometric relations statistically measured in the past could be extrapolated over a relatively long period and hence to base energy forecasts on econometric models. The “energy crisis” brought on by the quadrupling of the crude oil price. considered as the leading price of energy commodities because of its important share in the world energy market. has caused a break in past trends and has substantially shortened the period over which econometric methods can be considered reliable. This break can be analysed through several phenomena: 0 the relative costs of some technologies, mainly in the industrial sectors, have been affected by the substantial rise in hydrocarbon prices. This will lead to the development of technologies which are either less energy intensive (substitution energy~capital) or based upon different energy sources; 0 because of the discrepancies in energy prices between industrialized and oil producing countries, some heavy industries-such as steel and petrochemicalsmay be relocated in these latter countries. This phenomenon might even be accelerated as developing
countries feel more acutely the need to attract heavy industries; 0 the governments of countries which are very dependent on energy imports (most of the industrialized countries) are now trying to implement energy savings measures with the twofold objective of reducing their energy dependence and limiting their currency expenditure (e.g. by passing insulation standards for space heating); 0 finally, the change in the relative price of oil and electricity, to the advantage of the latter, will modify the conditions of competition between the two commodities and cause the boundary between their markets to become more flexible. In view of these difficulties, price variables may be introduced into econometric models through medium- or long-term elasticities. But the use of long-term elasticities in econometric models to account for the socioeconomic system response to the energy price increase is extremely hazardous because of the difficulty of measuring statistically the energy demand price elasticities when the price remains stable, which was the case for energy. The use of these calculated elasticities to analyse consumer reactions in the medium or long term is also questionable, since elasticity is a static concept which is only meaningful in the socioeconomic context in which it is measured. Apart from the limits previously outlined, another basic criticism of the econometric methods is their rigidity-they do not allow for taking into account the influence of alternative long-term economic growth patterns (industrial development, urbanization trends, modes of transportation, lifestyle, etc.) on energy demand level. Econometric methods capture in a too rough and aggregated way the interface between energy demand and economic development. This does not mean that econometric models should never be used for energy demand forecasting. But we do
54
B. LAPJLLONNEand B. CHATEAU
think that their use should be restricted to forecasts for a period over which the effects of structural changes can be considered as marginal (5-10 yr).
dustries such as steel from industrialized countries to developing countries, resulting in lower costs for energy, raw materials and labor): government policies (e.g. transportation and energy conservation policies): tech-
A new approach
nology (e.g. substitution of current processes with less energy-intensive ones): energy prices (especially oil prices, etc.) 0 to identify the change over time of the potential market (i.e. the maximum demand that can be technically met) of each final energy form (e.g. electricity, coal, gas, solar, oil products and district heat); 0 the various aspects of the development of the society, which eventually determine the long-term energy demand growth, must be described in an exhaustive, consistent and plausible way, that is to say in the framework of a methodically designed scenario, in which must be included studies of sociologists, economists, policy analysts, etc.: 0 finally, the approach must lead to an operational tool which could be easily applied to various counries and various scenario cases. In respect with those main guidelines, the MEDEE approach involves the following steps: (1) Disaggregation of the total energy demand into relevant homogeneous end use categories or modules (like cooking, space heating for instance) whose selection
The MEDEE approach which will now be described is rather different and tries to overcome some of the limits previously outlined for the traditional forecasting methods. In designing this approach we had the following ideas in mind: 0 energy demand is induced by socioeconomic determinants that is, by economic activities and by the satisfaction of social needs (e.g. mobility of persons and temperature in rooms). These determinants lead to a demand for useful energy (e.g. process heat and mechanical energy) whose intensity depends on the technologies used to satisfy social needs or to perform the economic activities. The demand for energy commodities or final energy (e.g. coal, electricity and gas) can be calculated from the level of useful energy demand which will depend upon the efficiency of the equipment (e.g. furnaces, boilers and engines) used to convert the final energy into useful energy. Thus the final energy demand of a society is directly related to its social, economic and technological pattern of development (see Fig. 1 for the general scheme of energy demand analysis); 0 to explore the impacts of structural changes in the socioeconomic development on long-term energy demand, it is necessary to disaggregate the social economic and technological system so as to be able to take these changes explicitly into account. These include changes in: social needs (e.g. saturation): the international division of labor (e.g. the shift of heavy inI
I Social
I need
Economic actlvlty (eg steel production
I
(II
)
Useful energy demand
depends upon the objectives pursued by the modeler, on data availability and on the characteristics of the country (see Fig. 2 for the basic reference structure). (2) A systematic analysis of the social, economic and technological factors determining the long-term energy demand evolution within each module and identification of their interrelationships. (3) Organization of all determinants into a hierarchical
I
Technolqicol determinants (eg steelmaking dwelling Insulatlonl
Y Fig.
Flnol energy demand
1-q
1.General schemefor energy
tttlclency ot end-us ” (e g boiler ant furnace)
demand analysis in MEDEE.
Socio economic system
heating
water
appliances
transit
Fig. 2. Disaggregation of the socioeconomic
system in MEDEE.
I I
The MEDEE structure, from the macro how the “macrodeterminants”
models for long term energy demand forecasting
to the micro level, showing affect each end-use cate-
gory. (4) Construction of a simulation model and of an associated scenario structure by simplifying the structure of the socio-economic system and grouping the determinants into those the evolution of which can be formalized through mathematical equations (endogeneous determinants or variables) and those the evolution of which cannot be quantified, the exogeneous determinants on the one hand, the scenario elements on the other hand. The determinants chosen as scenario elements are those the evolution of which cannot be extrapolated from past trends because of possible structural changes in the energy demand growth pattern, as for example, policy measures or energy prices. The evolution of these factors is specified in a scenario. The exogenous determinants encompass those factors the evolution of which is difficult to model (e.g. population growth, number of persons per household) but for which their long-term evolution can be adjusted suitably from past trends or from other studies (e.g. demographic studies).
The MEDEE models Two computerized models have been built so far: MEDEE 2 and MEDEE 3.1 They first differ from their level of disaggregation. The MEDEE 3 structure matches the scheme shown in Fig. I while MEDEE 2 is more aggregated: in the latter the transportation purposes, the age structure of the dwelling stock, the various services sectors as well as the large energy consuming industries are not accounted for in a detailed way. Secondly, in MEDEE 2, the development of new energy forms and technologies (e.g. solar, heat pump, electricity) in substitution to fossil fuels is normative and defined in the framework of the scenario, while in MEDEE 3 this development is simulated on the basis of the energy the energy policy and the decision-maker prices, behaviour. Thirdly, there is associated to MEDEE 3 a systematic procedure for the scenario design, aiming at improving the scenario consistency. Finally, MEDEE 3 simulates the whole evolution of the socio-economic system (e.g. evolution of the people mobility, the industrial activities) and calculates the energy demand for each module; MEDEE 2 is more an accounting framework than a real simulation model, which translates or quantifies a given scenario in terms of useful and final energy demand. In order to indicate the scope of the MEDEE models, we list some questions that the models can address: 0 how will income growth affect energy demand through the increase in the social needs (e.g. mobility, size of dwelling, consumption of goods)? 0 how and when in industrialized countries will the saturation of specific social needs influence energy demand? 0 how can a modification in the consumption patterns of the population (e.g. the shift to the service sector) affect energy demand? 0 how can the evolution of the international division of labor between industrialized and developing countries modify the industrial energy demand pattern in these
tA full description of these models is given in [2, 31 for MEDEE 2 and MEDEE 3 respectively and we will not come back to their description in this paper. SEPS Vol. IS. No. 2-C
55
countries? For example, what will be the effects of the shift in industrialized countries to industrial production with a higher value added and low energy content and the concentration in developing countries of the production of basic materials such as steel of plastics? 0 how would a shift from the use of automobiles to that of public transportation for intercity and urban transportation affect energy demand? 0 what potential for energy conservation could result from the retrofitting of existing buildings with better insulation and/or from the construction of better insulated buildings? 0 what is the potential market for solar heating, heat pumps, district heating, etc.?
The scenario writing process The long-term energy demand of a country greatly depends on its social, economic and technological development pattern. Since the evolution of this pattern will eventually be shaped by governmental policy and changes in social values (i.e. by unpredictable factors), it is impossible to model this evolution. Rather by means of a scenario we can make assumptions about possible evolutions that can be anticipated over the long-term from current changes, crises, or tensions. In the MEDEE approach a scenario is viewed as a consistent description of a possible long-term development pattern of a country, characterized mainly in terms of the long-term direction of governmental, socioeconomic policy. A more detailed description of the scenario approach in MEDEE can be found in [5]. Three groups of scenario elements can be identified: 0 those which characterize the international environment of the system and the economic and political relationship existing between the system and this environment; 0 those which characterize the main economic, social, political and technological features of the development of the system under consideration: 0 those which characterize secondary aspects of the evolution of the differents subsystems at different levels, as shown in the description of MEDEE 3 (scenario variables). In the application to France, it was considered that there exists a hierarchical relationship between the first group of elements and the second-meaning that the evolution of the international environment is determinant for the evolution of the French socioeconomic system and that the contrary is not true. The overall structure of the scenario for France is organized in the following way: World scenario. Three main variables characterize the long-term evolution of the world economy as far as the national economy is concerned: 0 the rate of growth of world economy activity; 0 the international division of labour and the worldwide location of industrial production; 0 the prices of raw materials, and, particularly, the price of oil. Although it is obvious that these variables are all dependent on each other, it is impossible to formalize their relationships, and then to draw a formalized structure of the base of this scenario. Nevertheless, it is necessary to keep these relationships in mind while designing the scenario. Socioeconomic scenario. TWO kinds of variables are part of the base of the socioeconomic scenario:
56
B. LAPILL~NNEand B. CHATEAU
l qualitative descriptors of the type of society which is supposed to develop within the time period under consideration: l quantitative macroeconomic and social variables which describe the rate, the social content and the structure of economic growth. Nine qualitative descriptors have been taken into consideration which specify different aspects of the type of society: type of economic growth, urbanization, industrial development, social policy, transport system, human settlement, housing, natural environment and energy system. As for the world scenario, relationships between these variables exist and must be kept in mind, but cannot be formalized. A macroeconomic model may be used to check the macroeconomic equilibrium (in the case of MEDEE 3, the SLT model from Battelle Geneve may be used). The scenario writing consists of formulating assumptions about the evolution of the scenario element. It starts with a qualitative description of the basic features (mainly policy objectives and life-style) of a country’s development pattern, taking into account possible constraints or influences from the international environment (e.g. oil prices and trade patterns). The consistency of the scenario rests on the formulation of a consistent development pattern, combining, for instance, compatible assumptions about the long-term objectives of the government. Then to further ensure consistency, the qualitative scenario descriptors are organized in a hierarchy according to their importance. Thus at the top of this hierarchy are the descriptors that have a determining influence on the other descriptors, but which cannot be significantly affected by them either because of their strong inertia (e.g. life-style, and human settlements patterns) or because of outside constraints (e.g. oil prices). In order to come up with a limited number of alternative assumptions, an analysis of the likely future evolution of each scenario element must first be made. This analysis should make broad use of the findings of all long-range studies of the country being considered (e.g. studies on transportation needs. on the saturation of social needs). 2. USE OF THE MEDEE MODELS Three major uses of the MEDEE models can be envisioned: 0 explore long-term energy demand resulting from various parts of society development and energy policy, that is to say forecast long-term energy demand: 0 improve the understanding of energy demand development, for instance analyze the relationship between economic growth and energy demand growth or study the potential for energy conservation or else delimitate the range of future energy demand by means of contrasted scenario; 0 assist national or regional decision makers dealing with energy problems in the process of planning. Forecasting One category of users of the MEDEE models is made up of those who need long-term energy demand perspectives in order to assist them in decision making, but whose decisions do not affect in a significant way the economic development pattern (energy companies or
tin 1974 dollars; the price of oil is presently
around
18$1974/bbl.
international organisations for instance). In this case the use of the models consists in: l identifying the socio-economic scenarios which seem to be the most probable taking into account the historical trends, the present policy goals of the government, the structural changes in the society that can be observed now and can be assumed in the future; 0 calculating the consequences of these scenarios in term of useful energy needs and of energy products demand; 0 analysing the sensitivity of these results to the variations of some variables whose evolution is the least known, or variables which are crucial as to energy demand. Initially MEDEE was conceived and developed for this type of application. It was first applied in the case of France for three national companies, Electricite de France (EDF), Commissariat a I’Energie Atomique (CEA) and Elf-Aquitaine (SNEA). Further work has since then been carried out for the International Institut for Applied System Analysis (IIASA) and the European Community (EC). For the EC two types of applications have been carried out: 0 application of MEDEE 3 to each country of the EC, which implies the constitution of a detailed data base on social, economic and energy indicators and the elaboration of forecasts for all these countries. 0 preliminary investigation of what could be the energy demand pattern of the EC in year 2000 was carried out with MEDEE 2. Four scenarios were considered, obtained by crossing socio-economic scenarios-high growth with an increasing specialization of industry and a redistribution of international division labor on the one hand, low growth with an increase of public expenditure and reduction of investment on the other hand-with these energy scenarios-prolongation of present policies and slight increase in oil price on the one hand, implementation of vigourous energy conservation measures and incentives for the development of new energy sources, plus oil price increasing up to 25$/bblt in 2000 on the other hand. The final energy demand varies by as much as 440 Mtoet between the highest and the lowest case. which corresponds to an average energy demand growth rate between 1.7% and 3% on the period 1975-2000, against 4.3% between I%3 and 73: the elasticity of final energy demand to GDP lies between 0.6 and 0.75 compared to an historical value between 0.9 and 1. The detailed results are given in [S].
Understanding energy demand growth Research institute or even administration may be interested to test specific scenarios with the idea of understanding better some aspects of energy demand. In this case, the crucial point is the selection of the scenarios which have to be relevant with respect to the issue to investigate. So far several issues related to energy demand have been treated with MEDEE; the conclusions are still preliminary and need to be further investigated. Two studies have been carried out, one for France and another one in the case of the US. In the case of France three scenarios have been investigated and compared from these energy demands: these scenarios were assumed to have the same economic growth rate and demographic evolution but different socioeconomic growth pattern and energy con-
The MEDEE
models
for long term energy
servation policies. The first scenario (referred to as A) assumes a prolongation in the future of the past trends in terms of industrial development (high industrial growth, decline of basic materials industries, restructuration of the industry around equipment goods industries) and an active policy of energy conservation and development of new energy sources and technologies (e.g. heat pumps, solar and district heating). The second scenario (B) considers that the economic and industrial structures will remain stable up to year 2000 and that no drastic measures will be taken to save energy. The third scenario (C) describes a contrasted evolution of the French economy characterized by a strong decentralization of economic activities and a significant development of service activities. The results are presented in details in 6. The major findings are the following: for the same economic growth rate (4%/year) final energy demand varies in 2000 between 245 Mtoe (scenarios A and C) and 315 Mtoe (B) which represents a difference of 70Mtoe that is to say about 60% of the present oil imports; the electricity also varies significantly: 390 Twh in C, 430 Twh in A and 540 Twh in B which represents a range of I50 Twh (i.e. the equivalent of the annual production of 25 to 30 nuclear reactors). On the period 1975-2000, the elasticity of energy demand to GDP varies between 0.55 for A and C and 0.8 for B compared to an historical value closed to I: this shows a clear decoupling between economic activity and energy demand, even for a scenario which extrapolates more or less the past trends (B). The results show also that, whatever the scenario, the dependancet to fossil fuel remains high: decline from 83% in 1975 to 68% (A), 80% (B), 77% (C) in 2000. For the application to the US, three alternative scenarios have been considered to characterize possible evolutions of the American society, and therefore span the range of likely future energy demand in the US, for a given economic growth rate (4.5% between 1975 and 1985,3% after). These scenarios are mainly differentiated from the point of view of the US administration attitude towards the energy demand growth and the public response to the energy policy that could be implemented (pricing standards). The first scenario, called the reference case (R.C.), assumes no particular energy conservation policy and a slight adaptation of the consumer to higher energy price: in one mind this scenario will give an upper boundary of the US energy demand in 2000, for the economic growth assumed. The second scenario, called technological conservation (T.C.) is inspired from the National Energy Plan of President Carter submitted to the Senate in 1977. It assumes that the measures contained in the program are finally accepted and successful. The third scenario, called low energy profile (LEP), matches a more determined will of the administration to promote low energy consuming technologies and practices; such a scenario could take place if the oil supply situation was worsening and if energy alternatives (e.g. solar or nuclear) could not be developed fast enough and at a reasonable cost. The
tl Mtoe = I million ton oil equivalent. $In terms of primary energ;, the range is 112-129 quads in 2000comparedto 71 quads in 1975. lThe elasticitywas calculatedby measuringelectricityaccording to its primary value in order to make these figures able with the values given above for France.
compar-
demand
forecasting
57
final energy demand shows a range of about I2 Quads in 2000, i.e. more than 300 Mtoe (76 Quads for LEP and 88 Quads for RG, compared to 60 Quads in 1975).$ The elasticity of energy demand to GDP is closed to 0.5 in LEP, and closed to 0.7 in RC§; this implies that, even in a “trend” scenario, a stronger decoupling of energy demand and GDP may be expected in the US than in European countries; a major reason for that comes from the assumed shift to less energy intensive cars as according to the existing regulations for car mileage. The detailed results are presented in [7]. Planning
The third category of users is made up of those who make the decisions which will influence in a significant way the socioeconomic development and who need to know the interactions between their decisions and the resulting energy demands in order to clarify their views as to societal goals, i.e. the government, the regional or local authorities. In this case the use of a model like MEDEE consists in: 0 identifying a set of decisions which will allow to reach the societal goals designed previously and translating those decisions in term of exogenous normative statements which are necessary to compute the model; 0 computing the consequences of these decisions in terms of useful energy needs and energy products demands: 0 checking, with the help of control variables calculated by the model, the conflicts, the impossibilities or the inconsistencies which are generated by the decisions; 0 changing the initial exogenous normative statements in order to try to solve the problems identified above and start again the cycle until an optimal set of decisions is found. CONCLUSION: USE AND MISUSE OF THE MEDEE APPROACH
requires stressing that MEDEE does not predict long-term energy demand, but relates evolution of energy demand to evolution of society. The quality of the longterm energy demand projections depends directly on the quality of the description of societal development. These major conclusions must be drawn from this, as far as the use of MEDEE is concerned: (1) MEDEE can be used only to project the energy future within a time horizon and a set of events which allows us to describe consistently and plausibly the evolution of society. To be more explicit, the choice of scenario elements and the design of the structure followed by them (which is the guarantee of scenario consistency) are relevant only if the initial postulate of continuity is respected-i.e. if we can reasonably assume that over the period of time chosen and within the general framework described by the chosen set of events, no major disruption appears, either in the world environment, or in the national system. (2) The scenario writing must be carried out after a careful analysis has been made of the long-term evolution of the social, economic, and technological system for which one wants to project energy demand. Since very often such an investigation is not possible within the sole frame of an energy demand study, the scenario writer should try (i) to incorporate in the scenario what has been analyzed by experts in the various relevant fields; (ii) to analyze in details the historical evolution of the scenario elements. It
B. LAPILLONNE
58
(3) If this is the case, then MEDEE can be satisfactorily used as an energy planning tool, since: 0 it translates, into final energy demand terms, the social, economic and technological policies of the public authorities, and then allows exploration of the alternative energy supply policies which could meet this demand; 0 it reveals the potential contradictions or inconsistencies which could result from these policies within the time period, and then helps to choose the appropriate decisions in the energy field; 0 it permits study of the impacts on energy demand trend of perturbation such as oil price increase, technological
innovation,
etc.
and B. CHATEAU 2. B,. Lapillonne,
3. 4.
5.
6.
REFERENCES I. B. Chateau and B. Lapillonne, La prekision d long terme de la +wmnde d’inergie: propositions m6thodologiquq p. 255. Editions du CNRS, Paris (1977).
7.
MEDEE
2: A Model
for Long-Term
Demand
Et&&ion, p. 45. Laxenburg (Austria), International Institute for Applied Systems Analysis (1978). B. Chateau and B. Lapillonne, Long-term energy demand simulation. Energy Policy, pp. 120-128 (Special issue) (1979). B. Chateau and B. Lapillonne, Mkthode d’8ahoration des sc&arios,associds au mod~!eMEDEE 3. p. 2PGrenoble (France), Institut Economique et Juridique de I’Energie, Grenoble. France (Janvier 1979). (Available also in English). B. Chateau and B. Lapillonne, Projections ci I’hori~on 2000 de la demande d’tkergie jinale de I’.I+rope des Neuf ci /‘aide du m?di/e MEDEE 2. p. 50. lnstitut Economique de Juridique de I’Energie (Septembre 1978). B. Chateau, B. Lapillonne, M. Alinhac, B. Laponehe and G. Moury,, La demande d’knergie finale de la France a’ l’horizon 2000. II. 7. Institut konomique et Juridique de I’l?nernie. Grenoble, France (Mars 1979): B. Lapillonne Long-term Perspective of the US Energy Demand: an application of the MEDEE 2 model to the US. p. Energy 5,231-257 (1980).
THE MEDEE MODELS FOR LONG TERM ENERGY DEMAND FORECASTING B. LAPILLONNE Institut
!&onomique
et Juridique
de I’I?nergie,
and B. CHATEAU BP 47 X-Centre
(Received 20
May
de Tri, 38040 Grenoble-Cedex.
France
1980)
Abstract-Energy demand forecasting is increasingly faced with a contradiction. On one hand, it is becoming necessary to forecast energy demand over a longer time horizon to take into account increased construction time for energy production equipment (e.g. nuclear plant) and in line with the increasing need to take into account the social and economic impacts of energy system development when defining energy strategies. On the other hand, the increasing uncertainties in the evolution of energy prices and, particularly, of the economy and its structures together with the increased rapidity of changes in those fields require that time horizons are shortened within which one can reasonably use the traditional tools of energy demand forecasting (and, in particular, econometric models). The fourfold increase in oil prices in late 1973 and the crisis which has affected most of the industrialized countries since then have stressed this contradiction and have reinforced the necessity of defining new approaches in handfing the issue of long-term energy demand evolution. The approach presented in this paper is the result of five year5 research at Institut &onomique et Juridique de I’finergie (IEJE) in Grenoble (France). It is based first upon a comprehensive description, by means of a scenario, of the long term evolution of the socio-economic system, with a particular emphasis on its energy related aspects, and secondly on a simulation model-MEDEE-which permits to evaluate the energy demand associated to the scenario. The first part of this paper is devoted to a general description of the approach and the philosophy behind its development; the second part presents the type of applications that can be envisaged with MEDEE and gives a brief overview of the studies already carried out.
1. THE MEDEE APPROACH
The need for new long term ener,y demand forecasting methods The main methods used until now for energy demand forecasting were designed in a relatively stable energy and economic context, dominated by the following characteristics: l steady economic growth: 0 low energy prices compared to other production factors, with even a siightly declining price trend; 0 a strongly partitioned energy market, especially between conventional fuels and electricity, permitting separate forecasts for these two energy commodities. This relative stability partly explains the success of econometric forecasting methods. Because everything was changing slowly and steadily, it was almost justifiable to assume that the econometric relations statistically measured in the past could be extrapolated over a relatively long period and hence to base energy forecasts on econometric models. The “energy crisis” brought on by the quadrupling of the crude oil price. considered as the leading price of energy commodities because of its important share in the world energy market. has caused a break in past trends and has substantially shortened the period over which econometric methods can be considered reliable. This break can be analysed through several phenomena: 0 the relative costs of some technologies, mainly in the industrial sectors, have been affected by the substantial rise in hydrocarbon prices. This will lead to the development of technologies which are either less energy intensive (substitution energy~capital) or based upon different energy sources; 0 because of the discrepancies in energy prices between industrialized and oil producing countries, some heavy industries-such as steel and petrochemicalsmay be relocated in these latter countries. This phenomenon might even be accelerated as developing
countries feel more acutely the need to attract heavy industries; 0 the governments of countries which are very dependent on energy imports (most of the industrialized countries) are now trying to implement energy savings measures with the twofold objective of reducing their energy dependence and limiting their currency expenditure (e.g. by passing insulation standards for space heating); 0 finally, the change in the relative price of oil and electricity, to the advantage of the latter, will modify the conditions of competition between the two commodities and cause the boundary between their markets to become more flexible. In view of these difficulties, price variables may be introduced into econometric models through medium- or long-term elasticities. But the use of long-term elasticities in econometric models to account for the socioeconomic system response to the energy price increase is extremely hazardous because of the difficulty of measuring statistically the energy demand price elasticities when the price remains stable, which was the case for energy. The use of these calculated elasticities to analyse consumer reactions in the medium or long term is also questionable, since elasticity is a static concept which is only meaningful in the socioeconomic context in which it is measured. Apart from the limits previously outlined, another basic criticism of the econometric methods is their rigidity-they do not allow for taking into account the influence of alternative long-term economic growth patterns (industrial development, urbanization trends, modes of transportation, lifestyle, etc.) on energy demand level. Econometric methods capture in a too rough and aggregated way the interface between energy demand and economic development. This does not mean that econometric models should never be used for energy demand forecasting. But we do
54
B. LAPJLLONNEand B. CHATEAU
think that their use should be restricted to forecasts for a period over which the effects of structural changes can be considered as marginal (5-10 yr).
dustries such as steel from industrialized countries to developing countries, resulting in lower costs for energy, raw materials and labor): government policies (e.g. transportation and energy conservation policies): tech-
A new approach
nology (e.g. substitution of current processes with less energy-intensive ones): energy prices (especially oil prices, etc.) 0 to identify the change over time of the potential market (i.e. the maximum demand that can be technically met) of each final energy form (e.g. electricity, coal, gas, solar, oil products and district heat); 0 the various aspects of the development of the society, which eventually determine the long-term energy demand growth, must be described in an exhaustive, consistent and plausible way, that is to say in the framework of a methodically designed scenario, in which must be included studies of sociologists, economists, policy analysts, etc.: 0 finally, the approach must lead to an operational tool which could be easily applied to various counries and various scenario cases. In respect with those main guidelines, the MEDEE approach involves the following steps: (1) Disaggregation of the total energy demand into relevant homogeneous end use categories or modules (like cooking, space heating for instance) whose selection
The MEDEE approach which will now be described is rather different and tries to overcome some of the limits previously outlined for the traditional forecasting methods. In designing this approach we had the following ideas in mind: 0 energy demand is induced by socioeconomic determinants that is, by economic activities and by the satisfaction of social needs (e.g. mobility of persons and temperature in rooms). These determinants lead to a demand for useful energy (e.g. process heat and mechanical energy) whose intensity depends on the technologies used to satisfy social needs or to perform the economic activities. The demand for energy commodities or final energy (e.g. coal, electricity and gas) can be calculated from the level of useful energy demand which will depend upon the efficiency of the equipment (e.g. furnaces, boilers and engines) used to convert the final energy into useful energy. Thus the final energy demand of a society is directly related to its social, economic and technological pattern of development (see Fig. 1 for the general scheme of energy demand analysis); 0 to explore the impacts of structural changes in the socioeconomic development on long-term energy demand, it is necessary to disaggregate the social economic and technological system so as to be able to take these changes explicitly into account. These include changes in: social needs (e.g. saturation): the international division of labor (e.g. the shift of heavy inI
I Social
I need
Economic actlvlty (eg steel production
I
(II
)
Useful energy demand
depends upon the objectives pursued by the modeler, on data availability and on the characteristics of the country (see Fig. 2 for the basic reference structure). (2) A systematic analysis of the social, economic and technological factors determining the long-term energy demand evolution within each module and identification of their interrelationships. (3) Organization of all determinants into a hierarchical
I
Technolqicol determinants (eg steelmaking dwelling Insulatlonl
Y Fig.
Flnol energy demand
1-q
1.General schemefor energy
tttlclency ot end-us ” (e g boiler ant furnace)
demand analysis in MEDEE.
Socio economic system
heating
water
appliances
transit
Fig. 2. Disaggregation of the socioeconomic
system in MEDEE.
I I
The MEDEE structure, from the macro how the “macrodeterminants”
models for long term energy demand forecasting
to the micro level, showing affect each end-use cate-
gory. (4) Construction of a simulation model and of an associated scenario structure by simplifying the structure of the socio-economic system and grouping the determinants into those the evolution of which can be formalized through mathematical equations (endogeneous determinants or variables) and those the evolution of which cannot be quantified, the exogeneous determinants on the one hand, the scenario elements on the other hand. The determinants chosen as scenario elements are those the evolution of which cannot be extrapolated from past trends because of possible structural changes in the energy demand growth pattern, as for example, policy measures or energy prices. The evolution of these factors is specified in a scenario. The exogenous determinants encompass those factors the evolution of which is difficult to model (e.g. population growth, number of persons per household) but for which their long-term evolution can be adjusted suitably from past trends or from other studies (e.g. demographic studies).
The MEDEE models Two computerized models have been built so far: MEDEE 2 and MEDEE 3.1 They first differ from their level of disaggregation. The MEDEE 3 structure matches the scheme shown in Fig. I while MEDEE 2 is more aggregated: in the latter the transportation purposes, the age structure of the dwelling stock, the various services sectors as well as the large energy consuming industries are not accounted for in a detailed way. Secondly, in MEDEE 2, the development of new energy forms and technologies (e.g. solar, heat pump, electricity) in substitution to fossil fuels is normative and defined in the framework of the scenario, while in MEDEE 3 this development is simulated on the basis of the energy the energy policy and the decision-maker prices, behaviour. Thirdly, there is associated to MEDEE 3 a systematic procedure for the scenario design, aiming at improving the scenario consistency. Finally, MEDEE 3 simulates the whole evolution of the socio-economic system (e.g. evolution of the people mobility, the industrial activities) and calculates the energy demand for each module; MEDEE 2 is more an accounting framework than a real simulation model, which translates or quantifies a given scenario in terms of useful and final energy demand. In order to indicate the scope of the MEDEE models, we list some questions that the models can address: 0 how will income growth affect energy demand through the increase in the social needs (e.g. mobility, size of dwelling, consumption of goods)? 0 how and when in industrialized countries will the saturation of specific social needs influence energy demand? 0 how can a modification in the consumption patterns of the population (e.g. the shift to the service sector) affect energy demand? 0 how can the evolution of the international division of labor between industrialized and developing countries modify the industrial energy demand pattern in these
tA full description of these models is given in [2, 31 for MEDEE 2 and MEDEE 3 respectively and we will not come back to their description in this paper. SEPS Vol. IS. No. 2-C
55
countries? For example, what will be the effects of the shift in industrialized countries to industrial production with a higher value added and low energy content and the concentration in developing countries of the production of basic materials such as steel of plastics? 0 how would a shift from the use of automobiles to that of public transportation for intercity and urban transportation affect energy demand? 0 what potential for energy conservation could result from the retrofitting of existing buildings with better insulation and/or from the construction of better insulated buildings? 0 what is the potential market for solar heating, heat pumps, district heating, etc.?
The scenario writing process The long-term energy demand of a country greatly depends on its social, economic and technological development pattern. Since the evolution of this pattern will eventually be shaped by governmental policy and changes in social values (i.e. by unpredictable factors), it is impossible to model this evolution. Rather by means of a scenario we can make assumptions about possible evolutions that can be anticipated over the long-term from current changes, crises, or tensions. In the MEDEE approach a scenario is viewed as a consistent description of a possible long-term development pattern of a country, characterized mainly in terms of the long-term direction of governmental, socioeconomic policy. A more detailed description of the scenario approach in MEDEE can be found in [5]. Three groups of scenario elements can be identified: 0 those which characterize the international environment of the system and the economic and political relationship existing between the system and this environment; 0 those which characterize the main economic, social, political and technological features of the development of the system under consideration: 0 those which characterize secondary aspects of the evolution of the differents subsystems at different levels, as shown in the description of MEDEE 3 (scenario variables). In the application to France, it was considered that there exists a hierarchical relationship between the first group of elements and the second-meaning that the evolution of the international environment is determinant for the evolution of the French socioeconomic system and that the contrary is not true. The overall structure of the scenario for France is organized in the following way: World scenario. Three main variables characterize the long-term evolution of the world economy as far as the national economy is concerned: 0 the rate of growth of world economy activity; 0 the international division of labour and the worldwide location of industrial production; 0 the prices of raw materials, and, particularly, the price of oil. Although it is obvious that these variables are all dependent on each other, it is impossible to formalize their relationships, and then to draw a formalized structure of the base of this scenario. Nevertheless, it is necessary to keep these relationships in mind while designing the scenario. Socioeconomic scenario. TWO kinds of variables are part of the base of the socioeconomic scenario:
56
B. LAPILL~NNEand B. CHATEAU
l qualitative descriptors of the type of society which is supposed to develop within the time period under consideration: l quantitative macroeconomic and social variables which describe the rate, the social content and the structure of economic growth. Nine qualitative descriptors have been taken into consideration which specify different aspects of the type of society: type of economic growth, urbanization, industrial development, social policy, transport system, human settlement, housing, natural environment and energy system. As for the world scenario, relationships between these variables exist and must be kept in mind, but cannot be formalized. A macroeconomic model may be used to check the macroeconomic equilibrium (in the case of MEDEE 3, the SLT model from Battelle Geneve may be used). The scenario writing consists of formulating assumptions about the evolution of the scenario element. It starts with a qualitative description of the basic features (mainly policy objectives and life-style) of a country’s development pattern, taking into account possible constraints or influences from the international environment (e.g. oil prices and trade patterns). The consistency of the scenario rests on the formulation of a consistent development pattern, combining, for instance, compatible assumptions about the long-term objectives of the government. Then to further ensure consistency, the qualitative scenario descriptors are organized in a hierarchy according to their importance. Thus at the top of this hierarchy are the descriptors that have a determining influence on the other descriptors, but which cannot be significantly affected by them either because of their strong inertia (e.g. life-style, and human settlements patterns) or because of outside constraints (e.g. oil prices). In order to come up with a limited number of alternative assumptions, an analysis of the likely future evolution of each scenario element must first be made. This analysis should make broad use of the findings of all long-range studies of the country being considered (e.g. studies on transportation needs. on the saturation of social needs). 2. USE OF THE MEDEE MODELS Three major uses of the MEDEE models can be envisioned: 0 explore long-term energy demand resulting from various parts of society development and energy policy, that is to say forecast long-term energy demand: 0 improve the understanding of energy demand development, for instance analyze the relationship between economic growth and energy demand growth or study the potential for energy conservation or else delimitate the range of future energy demand by means of contrasted scenario; 0 assist national or regional decision makers dealing with energy problems in the process of planning. Forecasting One category of users of the MEDEE models is made up of those who need long-term energy demand perspectives in order to assist them in decision making, but whose decisions do not affect in a significant way the economic development pattern (energy companies or
tin 1974 dollars; the price of oil is presently
around
18$1974/bbl.
international organisations for instance). In this case the use of the models consists in: l identifying the socio-economic scenarios which seem to be the most probable taking into account the historical trends, the present policy goals of the government, the structural changes in the society that can be observed now and can be assumed in the future; 0 calculating the consequences of these scenarios in term of useful energy needs and of energy products demand; 0 analysing the sensitivity of these results to the variations of some variables whose evolution is the least known, or variables which are crucial as to energy demand. Initially MEDEE was conceived and developed for this type of application. It was first applied in the case of France for three national companies, Electricite de France (EDF), Commissariat a I’Energie Atomique (CEA) and Elf-Aquitaine (SNEA). Further work has since then been carried out for the International Institut for Applied System Analysis (IIASA) and the European Community (EC). For the EC two types of applications have been carried out: 0 application of MEDEE 3 to each country of the EC, which implies the constitution of a detailed data base on social, economic and energy indicators and the elaboration of forecasts for all these countries. 0 preliminary investigation of what could be the energy demand pattern of the EC in year 2000 was carried out with MEDEE 2. Four scenarios were considered, obtained by crossing socio-economic scenarios-high growth with an increasing specialization of industry and a redistribution of international division labor on the one hand, low growth with an increase of public expenditure and reduction of investment on the other hand-with these energy scenarios-prolongation of present policies and slight increase in oil price on the one hand, implementation of vigourous energy conservation measures and incentives for the development of new energy sources, plus oil price increasing up to 25$/bblt in 2000 on the other hand. The final energy demand varies by as much as 440 Mtoet between the highest and the lowest case. which corresponds to an average energy demand growth rate between 1.7% and 3% on the period 1975-2000, against 4.3% between I%3 and 73: the elasticity of final energy demand to GDP lies between 0.6 and 0.75 compared to an historical value between 0.9 and 1. The detailed results are given in [S].
Understanding energy demand growth Research institute or even administration may be interested to test specific scenarios with the idea of understanding better some aspects of energy demand. In this case, the crucial point is the selection of the scenarios which have to be relevant with respect to the issue to investigate. So far several issues related to energy demand have been treated with MEDEE; the conclusions are still preliminary and need to be further investigated. Two studies have been carried out, one for France and another one in the case of the US. In the case of France three scenarios have been investigated and compared from these energy demands: these scenarios were assumed to have the same economic growth rate and demographic evolution but different socioeconomic growth pattern and energy con-
The MEDEE
models
for long term energy
servation policies. The first scenario (referred to as A) assumes a prolongation in the future of the past trends in terms of industrial development (high industrial growth, decline of basic materials industries, restructuration of the industry around equipment goods industries) and an active policy of energy conservation and development of new energy sources and technologies (e.g. heat pumps, solar and district heating). The second scenario (B) considers that the economic and industrial structures will remain stable up to year 2000 and that no drastic measures will be taken to save energy. The third scenario (C) describes a contrasted evolution of the French economy characterized by a strong decentralization of economic activities and a significant development of service activities. The results are presented in details in 6. The major findings are the following: for the same economic growth rate (4%/year) final energy demand varies in 2000 between 245 Mtoe (scenarios A and C) and 315 Mtoe (B) which represents a difference of 70Mtoe that is to say about 60% of the present oil imports; the electricity also varies significantly: 390 Twh in C, 430 Twh in A and 540 Twh in B which represents a range of I50 Twh (i.e. the equivalent of the annual production of 25 to 30 nuclear reactors). On the period 1975-2000, the elasticity of energy demand to GDP varies between 0.55 for A and C and 0.8 for B compared to an historical value closed to I: this shows a clear decoupling between economic activity and energy demand, even for a scenario which extrapolates more or less the past trends (B). The results show also that, whatever the scenario, the dependancet to fossil fuel remains high: decline from 83% in 1975 to 68% (A), 80% (B), 77% (C) in 2000. For the application to the US, three alternative scenarios have been considered to characterize possible evolutions of the American society, and therefore span the range of likely future energy demand in the US, for a given economic growth rate (4.5% between 1975 and 1985,3% after). These scenarios are mainly differentiated from the point of view of the US administration attitude towards the energy demand growth and the public response to the energy policy that could be implemented (pricing standards). The first scenario, called the reference case (R.C.), assumes no particular energy conservation policy and a slight adaptation of the consumer to higher energy price: in one mind this scenario will give an upper boundary of the US energy demand in 2000, for the economic growth assumed. The second scenario, called technological conservation (T.C.) is inspired from the National Energy Plan of President Carter submitted to the Senate in 1977. It assumes that the measures contained in the program are finally accepted and successful. The third scenario, called low energy profile (LEP), matches a more determined will of the administration to promote low energy consuming technologies and practices; such a scenario could take place if the oil supply situation was worsening and if energy alternatives (e.g. solar or nuclear) could not be developed fast enough and at a reasonable cost. The
tl Mtoe = I million ton oil equivalent. $In terms of primary energ;, the range is 112-129 quads in 2000comparedto 71 quads in 1975. lThe elasticitywas calculatedby measuringelectricityaccording to its primary value in order to make these figures able with the values given above for France.
compar-
demand
forecasting
57
final energy demand shows a range of about I2 Quads in 2000, i.e. more than 300 Mtoe (76 Quads for LEP and 88 Quads for RG, compared to 60 Quads in 1975).$ The elasticity of energy demand to GDP is closed to 0.5 in LEP, and closed to 0.7 in RC§; this implies that, even in a “trend” scenario, a stronger decoupling of energy demand and GDP may be expected in the US than in European countries; a major reason for that comes from the assumed shift to less energy intensive cars as according to the existing regulations for car mileage. The detailed results are presented in [7]. Planning
The third category of users is made up of those who make the decisions which will influence in a significant way the socioeconomic development and who need to know the interactions between their decisions and the resulting energy demands in order to clarify their views as to societal goals, i.e. the government, the regional or local authorities. In this case the use of a model like MEDEE consists in: 0 identifying a set of decisions which will allow to reach the societal goals designed previously and translating those decisions in term of exogenous normative statements which are necessary to compute the model; 0 computing the consequences of these decisions in terms of useful energy needs and energy products demands: 0 checking, with the help of control variables calculated by the model, the conflicts, the impossibilities or the inconsistencies which are generated by the decisions; 0 changing the initial exogenous normative statements in order to try to solve the problems identified above and start again the cycle until an optimal set of decisions is found. CONCLUSION: USE AND MISUSE OF THE MEDEE APPROACH
requires stressing that MEDEE does not predict long-term energy demand, but relates evolution of energy demand to evolution of society. The quality of the longterm energy demand projections depends directly on the quality of the description of societal development. These major conclusions must be drawn from this, as far as the use of MEDEE is concerned: (1) MEDEE can be used only to project the energy future within a time horizon and a set of events which allows us to describe consistently and plausibly the evolution of society. To be more explicit, the choice of scenario elements and the design of the structure followed by them (which is the guarantee of scenario consistency) are relevant only if the initial postulate of continuity is respected-i.e. if we can reasonably assume that over the period of time chosen and within the general framework described by the chosen set of events, no major disruption appears, either in the world environment, or in the national system. (2) The scenario writing must be carried out after a careful analysis has been made of the long-term evolution of the social, economic, and technological system for which one wants to project energy demand. Since very often such an investigation is not possible within the sole frame of an energy demand study, the scenario writer should try (i) to incorporate in the scenario what has been analyzed by experts in the various relevant fields; (ii) to analyze in details the historical evolution of the scenario elements. It
B. LAPILLONNE
58
(3) If this is the case, then MEDEE can be satisfactorily used as an energy planning tool, since: 0 it translates, into final energy demand terms, the social, economic and technological policies of the public authorities, and then allows exploration of the alternative energy supply policies which could meet this demand; 0 it reveals the potential contradictions or inconsistencies which could result from these policies within the time period, and then helps to choose the appropriate decisions in the energy field; 0 it permits study of the impacts on energy demand trend of perturbation such as oil price increase, technological
innovation,
etc.
and B. CHATEAU 2. B,. Lapillonne,
3. 4.
5.
6.
REFERENCES I. B. Chateau and B. Lapillonne, La prekision d long terme de la +wmnde d’inergie: propositions m6thodologiquq p. 255. Editions du CNRS, Paris (1977).
7.
MEDEE
2: A Model
for Long-Term
Demand
Et&&ion, p. 45. Laxenburg (Austria), International Institute for Applied Systems Analysis (1978). B. Chateau and B. Lapillonne, Long-term energy demand simulation. Energy Policy, pp. 120-128 (Special issue) (1979). B. Chateau and B. Lapillonne, Mkthode d’8ahoration des sc&arios,associds au mod~!eMEDEE 3. p. 2PGrenoble (France), Institut Economique et Juridique de I’Energie, Grenoble. France (Janvier 1979). (Available also in English). B. Chateau and B. Lapillonne, Projections ci I’hori~on 2000 de la demande d’tkergie jinale de I’.I+rope des Neuf ci /‘aide du m?di/e MEDEE 2. p. 50. lnstitut Economique de Juridique de I’Energie (Septembre 1978). B. Chateau, B. Lapillonne, M. Alinhac, B. Laponehe and G. Moury,, La demande d’knergie finale de la France a’ l’horizon 2000. II. 7. Institut konomique et Juridique de I’l?nernie. Grenoble, France (Mars 1979): B. Lapillonne Long-term Perspective of the US Energy Demand: an application of the MEDEE 2 model to the US. p. Energy 5,231-257 (1980).