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Evaluating the Effect of Electricity Price Adjustment and Peak and Off-Peak Electricity Price on Taiwan’s Industrial Energy Saving and Peak Electricity Demand Reduction 

No.: PR2048

Author: Liang, Chi-Yuan

Price: Not for Sale

Publication: 2018.12


Abstract:

Taiwan’s imported energy ratio and energy concentration ratio is very high, so international energy price fluctuations affect the trend of domestic power plant operations and electricity prices. Facing the current energy transformation policy and the gradual tightness of electricity supply in Taiwan, promoting the industrial sector to increase energy efficiency and reduce the peak electricity consumption is timely. 

The purpose of this study is to analyze the impact of the gap between peak and off-peak electricity price on peak electricity demand reduction, the effect of changes in electricity prices on the rebound effect and the time lag effect in Taiwan's industrial energy conservation, the feasibility of building energy-saving market trading mechanism in Taiwan, and to update and maintain Dynamic General Equilibrium Model of Taiwan (DGEMT). Concretely, we mainly discuss the following questions: 

1. We have data collection and literature review on international TOU rate mechanism, analysis model, and evaluate the impact of the gap between peak and off-peak electricity price on peak electricity demand reduction in Taiwan's industrial sector. 

2. We analyze the impact of the electricity price changes on potential electricity efficiency level and its rebound effect in Taiwan’s industrial sector. 

3. We measure the electricity consumption behavior and the time lag effect on electricity price changes. 

4. We summarize the latest energy-saving market trading mechanism in the world, and invite experts and scholars to hold a focus forum to discuss the feasibility of promoting the energy-saving trading market in Taiwan. 

5. We update and maintain DGEMT by 2016 to evaluate the impact of the electricity price changes or other energy-saving policies on industrial electricity consumption and economic growth. 

Up to research purpose, summary of the research results in order as follows: 

1. The international TOU plans can be mandatory or optional. For users with large-scale electricity consumption, many power companies adopt a mandatory mechanism. 

2. The most power companies will consider regional seasonal climate conditions, their own load conditions, and the possibility of flexible adjustments of electricity consumption time by the industry or the household sector to design the TOU plans. The ratio between peak and off-peak electricity price within TOU plans is from 1 to 16. 

3. According to the energy audit statistics, the total number of valid samples is 115,676. More than 70% of the manufacturers choose the three-section time-pricing plan with a large gap between peak price and off peak price. 

4. The ratio of the peak load to off-peak load less than one in summer within the three-section time-pricing plan, and the ratio is also higher in summer than non-summer period, indicating that expanding the peak and off-peak price ratio helps manufacturers reduce the peak load. 

5. In the three-section time-pricing plan, the electricity price substitution elasticity of the six major electricity consumption industries in Taiwan during the summer peak and off-peak period is -0.39 to -0.16, indicating that enlarging gap between the peak and the off-peak electricity price will help for load shift. 

6. The increasing in real GDP and capital investment will enhance the electricity consumption of the six major electricity consumption industries in Taiwan. Increasing electricity prices will improve the inefficiency of electricity using and thus reduce electricity consumption. 

7. Major electricity consumption industries have 13% improvement potential in electricity efficiency. The short-term rebound effect is 1.2% and the long-term rebound effect is -6.7%. 

8. The long-term income demand elasticity of the six major electricity consumption industries is 1.4622, and the electricity price demand elasticity is -0.7843. It indicating that the long-term electricity demand will increase with economic growth, and elevate the electricity price will have significant electricity-saving effects. 

9. The short-term income demand elasticity of the six major electricity consumption industries in Taiwan is 0.27 to 0.75, and the electricity price demand elasticity is between -0.36 and -0.48. 

10. The increasing of electricity price will lead to electricity saving in the six major electricity consumption industries, but the effect of deferred impact will decrease quarter by quarter. If electricity price increases in the first three quarters by 1%, the electricity saving will be 0.36% to 0.49%. 

11. If the pre-correction error term is higher than the long-term equilibrium, the current period will return the equilibrium state by speed of 45% adjustment. 

12. The Tradable White Certificate mechanism is through mandatory energy-saving regulations, requiring energy-saving obligors to take the responsibility for energy conservation, and can be combined with the trading mechanism to achieve energy-saving goals in a cost-effective manner. 

13. In the design of the Tradable White Certificate, we would not only face the issues of M&V and fuel poverty but the challenges of the international definition, substantial, additional, permanent, verifiable and enforceable problems. 

14. The Tradable White Certificate and the carbon emission trading mechanism both can promote R&D and investment in energy-saving, carbon-reduction technologies and improve energy efficiency. There is no conflict between the two systems. 

15. The energy- saving obligor of the Tradable White Certificate is recommended to be considered for including energy suppliers (for the Electricity Industry Act) and large-scale energy users (for the Energy Management Act). 

16. The Government should carefully consider the cost recovery mechanism, fiscal and tax incentives, and buffer mechanism of the Tradable White Certificate to encourage participants to actively invest in energy conservation. 

17. It is suggested that the Tradable White Certificate should be promoted by stages. A trading platform should be established from over-the-counter initially, and trading in the open market should be considered after the market matures. 

18. According to the White Paper of Energy Transformation, the government sets an energy efficiency improvement target for industrial sector then we further use the proportion of electricity consumption for allocating the energy saving obligation to various industries. The total benefit will higher than NT$20 billion and the cost of electricity saving will be NT$0.31 to 1.71 billion. Therefore, it is recommended to promote the Tradable White Certificate to encourage energy users to implement energy conservation. 

19. In 2016, the proportion of capital, labor, energy and intermediate inputs in Taiwan’s whole manufacturing industry accounted for 15.15%, 10.57%, 11.10% and 63.18%, respectively. 

20. In 2016, the absolute value of the energy demand elasticity of manufacture sector was the largest (-0.856), and the water, electricity, and gas sector was the smallest (-0.481) among the four industrial sectors. 

21. Domestic oil prices rose by 10-25%, which will increase Taiwan's manufacture sector output prices by 0.65-1.80%, GDP decline by 0.14-0.36%, and CPI increase by 0.317-0.885%. 

22. Domestic electricity prices rose by 3%, which will increase Taiwan's manufacture sector output prices by 0.219%, GDP decline by 0.078%, and CPI increase by 0.104%.