The NEMS Industrial Demand Module estimates energy consumption by energy
source (fuels and feedstocks) for 12 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 SEDS27 data.
The energy-intensive industries (food products, paper and allied products,
bulk chemicals, glass and glass products, cement, iron and steel, 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 2002 baseline Unit Energy Consumption (UEC) estimates
based on analysis of the Manufacturing Energy Consumption Survey (MECS)
2002.28 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 2002 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 2002 are assumed to require only 94 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 industries29 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 2002 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.30 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 2002 so that the actual
boiler fuel shares are produced for the relative prices that prevailed
in 2002.
The byproduct fuels are consumed before the quantity of purchased fuels
is estimated. The boiler fuel shares are based on the 2002 MECS.31
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.
The forecast 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 added in 2002 and
earlier and is assumed to retire at a fixed rate each year (Table 23).
Middle vintage capital is that which is added after 2002 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-2003 capital stock.
The energy intensity of the new capital stock relative to 2002 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.32
High Technology, 2005 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)33 The 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 0.7 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, delivered energy intensity
declines by 1.4 percent annually compared with the reference case, in which
delivered energy intensity is projected to decline 1.2 percent annually.
The 2005 technology case holds the energy efficiency of plant and equipment
constant at the 2005 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.
AEO2006 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 0.7 percent per year. The availability of additional biomass
leads to an increase in biomass-based CHP.
Industrial Tables
Industrial Notes |