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ENERGY CAPACITY MANAGEMENT FOR THE INDUSTRIAL SECTOR
OF ZHEJIANG PROVINCE IN CHINA: A SYSTEM DYNAMICS MODEL
LAO HONGMOU
NATURAL RESOURCES PROGRAM
ASIAN INSTITUTE OF TECHNOLOGY
(MAIL BOX 17, ASIAN INSTITUTE OF TECHNOLOGY, G. P. 0. BOX 2754, BANGKOK 10501, THAILAND)
1. INTRODUCTION
A well-balanced and coherent energy strategy is to safeguard the conditions
for economic development. Its importance has stressed the need for effective and
efficient energy management at a decentralized level. With the rapid economic
development in the past decade, Zhejiang province as one of the economic hot
spots in China, is facing the deterioration of energy shortage problem. Although
energy supply capacity was increased several times, the trend is becoming more
serious. This research focuses on the impact of energy shortage on industrial
production in Zhejiang through analyzing energy supply and consumption pattern,
and important factors that affect both patterns and the relationships between
them and discusing the situation of energy shortage problem in near future.
System Dynamics is used to study the complex dynamic system. A system
dynamic model was built to analyze the energy shortage problem and its effects
in long run. The hypothesis applied depandents to the historical evidence and
related knowledge. The model built is simplified with five main sectors:
Industrial production sector, Energy demand sector, Energy supply sector,
Financial resource allocation sector, and Energy conservation sector. Some
alternative policies are assessed through experiment with the model including
finance, energy conservation, and production management policies, etc..
2. A SYSTEM DYNAMICS MODEL FOR THE ENERGY SUPPLY AND CONSUMPTION SYSTEM
Energy demand depends on the industrial production capacity which is
developed according to the estimated rate and benefit rate related to the
industrial capacity utilization. Energy supply depends on the energy demand and
the financial resources allocation. Energy supply and demand are considered
electricity and coal, other energy resources is acount for only 10% in total,
besides most of oil is consumed in chemical industry sector as raw materials.
The alternative energy production mainly depends on the electricity
generation including coal-based electricity and hydroelectricity. Coal production
is only a complement to the supply. The characteristics of different electricity
technologies affect the decision of their expansion. Coal-based electricity
capacity has a low construction time and cost. The development of coal-based
electricity can meet the demand in short time but it has high operation cost and
environment problem. Hydroelectricity is clear and powerful in output adjustment
with the change of loading, but it is resources limited and possesses the
characteristics of a high construction cost, long construction period, and low
operation cost. Usually, energy production capacity is expanded in the technology
that minimizes the unit production cost.
Financial resources allocation is subjected to the industrial production
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benefit and allocation rate. Energy availability plays a role in the
distribution. Other financial sources are based on the industrial production
budget of provincial government and the industrial benefit, in which the national
and private investment can be simplified in it. The structure of model also is
desiged possible for various policies analysis from different aspects including
economics, energy supply snd demand patterns, environmental impact, and the
availbility of energy resources.
-) Coal Availabilty
+
)
Burden Cost
Coal“, Coal import
supp
The General Feedback Loops of Model
The hypothsis of this system can be described in the general feedback loops
illustrated. It explains how the industrial production and energy capacity are
developed. Industrial production capacity is represented with its fixed capital
in this model. Industrial production value, an indicator of industrial production
level, is based on the fixed capital and its capital output ratio (KOR) as well
as the capacity utilization. An increase of industrial fixed capital would result
in an increase in the production value and its benefit which then is the source
of government budget of next year. Capacity utilization is related with the
energy availability and the permitted utilization which is related to the
situation of energy shortage. Energy supply capacity and capacity utilization
have a positive effect to the industrial production.
There also are negative functions in the system that obstruct the
development of industrial production. With the expanding of the production fixed
capital, the increasing energy demand leads to the energy availability decrease.
If the capacity utilization decline, it would have a limiting effect on the
benefit of industrial production. If more budget is used for energy capacity
development, the investment of industrial production will be affected. The
environmental impact from coal consumption has a negative effect on the
production development.
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3. Policy Experiments
Policies are tested under completely controlled conditions. The experiments
focus on the analysis of budget distribution, the balance of energy demand and
supply patterns including cost of energy supply capacity, the degree of energy
shortage, and the rate of industry development.
Financial Policy:
During the past decades, the actual expansion rate of industrial capacity
is higher than the expected rate. It makes the energy capacity development fall
behind the industry development. The contradiction of energy demand and supply
is going deterioration. The electricity capacity expansion in the past decades
did not meet the expansion of industry capacity. It leads to industrial
production in a poor capacity utilization. Stepping the parameter of energy
budget fraction 10% in the model, the result shows that the policy to increase
the energy budget is effective to alleviate the problem. Although the budget in
industrial production is reduced, the high benefit rate would stimulate
investment in industrial production from other sources. The total investment in
industry can keep at a same level. It can improve electricity shortage without
reduction of industrial production value and benefit. Some policy experiments
such as increasing energy taxation and issuing electricity bond and stock are
similar in experiments.
On other hand, government can adopt the policy of increasing interest rate
in bank to slow the economic growth. It increases the production cost and
decreases the production benefit rate. This policy was designed by stepping
parameter of Interest_Rate from 6% to 9%. The result shows although industrial
fixed capital is lower than the base run, the increased capacity utilization can
keep the total industrial production value and benefit at the level of base run.
Increased interest rate makes the industry expansion slowly and the energy
shortage and coal availability alleviated. This case would stimulate the
development of coal-based electricity capacity. The speed of electricity
expansion would be close to the industrial expansion rate under this policy.
Energy Conservation Policy:
In industrial production, coal conservation can be implemented through
developing economic-scale production, reducing or controlling the small-scale
production or upgrading old facilities and equipment to increase the coal use
efficiency. The experiment shows that the emphasis of coal conservation is
counterintuitive. The industrial production value and its fixed capital are lower
than base run, but the energy availability is still not improved obviously. To
analyze the related feedback loops, this problem is from the coal supply system
based on coal demand. Quota coal is allocated according to the regional coal
demand by Central Government. The coal conservation policy can reduce the coal
demand, but the relative lower coal demand would share a less quota. The efforts
of coal conservation can not get a reasonable repayment exactly. The present coal
supply policy will hinder the implementation of coal conservation policy.
Electricity conservation can be implemented through upgrading old electric
appliance to increase the efficiency of electricity use. This policy is designed
by stepping the fraction of electricity conservation investment. The result shows
that the electricity availability is improved and the behavior of industrial
production has a favorable shifting too. The investment in electricity
conservation can be repaid from industrial benefit.
Adjustment of Industrial Production Pattern:
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To make great efforts on the development of industrial production with high
added value, high technology, and low energy intensity, such as microelectronics,
precision electrical machinery etc. may bring about a higher industrial
production value with low energy consumption rate. This is a strategy to shift
the industrial production pattern to a low energy intensive pattern. The results
shows that all indicators related to energy shortage are improved with the
increase of capacity utilization. Besides, this policy is not only beneficial to
alleviate the energy shortage problem but also helpful to alleviate the
environmental impact from energy consumption.
4. CONCLUSION
The structure and behavior of energy system can be represented in system
dynamics model effectively. The simulation experiments in this study are
significant to generate a behavior that is qualitatively similar to the real
world observations and to enable a logical and reasonable explanation of
behaviours' patterns in variables incorporated in stepping. From the policy
experiment and analyzing the resulting behavior, it seems that the way to re-
allocate the financial budget is most effective to alleviate the energy problem.
The government should guarantee the electricity investment and make the energy
budget a higher proportion in total. Other non-financial policies of energy
supply side are found to be comparatively effective including i) to strengthen
electricity conservation and increase the efficiency of electricity use, ii) to
increase the capacity of electricity generation, iii) to shift the industrial
production pattern into a low energy intensive pattern.
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