kubicek Aug 2108

Outlook for Energy Consumption in the Czech Republic in the Context of the Convergence Process

Emerging Energy Markets Tallin, August 21, 2008

Jan KubĂ­Ä?ek Advisor to the Board

Czech National Bank

Contents • • • •

Indicator of Energy Intensity of the Economy Electricity Consumption and GDP Prediction of Future Electricity Consumption Energy Savings as a New „Source of Energy“ (or Is It?)

Energy Intensity of the Economy I. Energy intensity in terms of kilograms of oil equivalent per 1000 euro of GDP 1800 1600 1400 1200 1000 800 600

200 0

EU25

BL RO EST LIT SK CZE LAT PL HUN TUR SLV USA FIN GRE PORT ESP SWE BEL UK EU25 NL LUX NOR IT FR GER IRL AUST JAP DEN

400

Source: EUROSTAT

Energy Intensity II. Energy intensity (kg of oil equivalent per 1000 EUR)

1800 BUL

1600 1400

Transition countries

1200

CZE

1000 800 600

USA JAP

400 200 0 0

50

100

150

200

• Energy intensity in transition countries is many times higher than in developed countries • The indicator of energy intensity as it is computed is misleading due to different price levels.

Price level Source: EUROSTAT and author’s calculations

Consumption of Electricity and GDP in PPS

Electricity consumption per capita (EU25 = 100)

300

• Relatively strong relationship between GDP in PPS and electricity consumption • Other factors: geographical position, industrial structure • Some countries above the fittedline, e.g.

Czech Republic – is it a symptom of energy inefficiencies?

SWE, FIN 250 LUX 200

150

GER

BEL AUST

CZE 100

IRL IT

50

HUN Transition countries

0 0

50

100

150

200

250

GDP per capita in PPS (EU25=100)

Source: EUROSTAT and author’s calculations

Convergence Process GDP per capita (EU15 = 100) 100

90

EU15

80

CZE

70 60 50

HUN

40

PL

SK

30 20 1995

• •

1997

1999

2001

2003

2005

2007

Estimates of future GDP growth as a starting point for estimating future electricity demand Growth of electricity demand (long term) = EU15 growth + convergence + population development Source: EUROSTAT and author’s calculations

Prediction I.

Source: author’s calculations

• Asumptions: GDP growth 3%, income elasticity of electricity demand 0.8, elimination of current deviation of the Czech Rep. from the regression line

Prediction II. 10000 CZE 2030

9000

• Result: +52 % compared to present demand • Strong growth despite conservative assumptions

EU 15 2030

kWh per capita

8000 +52%

7000

+35%

6000

EU15 2005

CZE 2005 5000 4000 3000 2000 30

50

70

90

110

130

150

GDP per capita (EU15 = 100)

Source: EUROSTAT and author’s calculations

A Note on Industry and Electricity Demand • Weight of industry in GDP has • been decreasing. Will it reduce electricity demand?

NO. The weight of industry is reduced because of declining relative prices of industrial production. Real growth rates of industry are similar to GDP growth rates.

Source: OECD and author’s calculations

Energy Savings as A New Source of Energy I. • Position of environmentalists: better technologies will lead to savings in energy, future energy demand will not grow so fast, it may even decline, i.e. energy savings as a new source of energy • What is quantitative size of energy savings?

• Methodology:

E = u. X / A E … electricity demand u … rate of use of electrical equipment X … stock of electrical equipment used in industry and services A … energy saving technology

Energy Savings as A New Source of Energy II. E = u. X / A

Source: EUROSTAT and author’s calculations

Energy Savings as A New Source of Energy III. • Energy savings were substantial and they will probably continue to be important • BUT (!): the stock of equipment grows fast, usually faster than real GDP (this is in line with diminishing marginal returns) • Therefore despite energy savings, demand for elctricity will continue to grow

Source: EUROSTAT and author’s calculations

Thank you for your attention Jan Kubicek Jan.kubicek@cnb.cz