Forecasting Electricity Demand in China Based on Input-Output Tables

Abstract

Within the framework of this study, the authors have constructed a forecast of electricity consumption in China, disaggregated by economic sector, for the period up to 2040. The initial data were the input-output tables for 2022, compiled by the Asian Development Bank (ADB). The exogenous conditions for the forecast are based on macroeconomic projections for China produced by the Australian Lowy Institute. It is assumed that, as per capita income in China rises, the sectoral structure of energy consumption will increasingly resemble that of higher-per-capita-income countries, particularly Japan. Forecasting electricity demand in China is carried out by solving an optimisation problem. The objective function in the optimisation model is the projected gross domestic product (GDP) index of the Chinese economy for 2040 relative to 2022. The main constraint is the minimisation of the total discrepancy between the sectoral structure of energy consumption in China and the corresponding structure of Japan in past years. The model also takes into account anticipated technological changes that affect the volume of energy consumption in economic sectors. Electricity demand in each industry is determined by the product of the final demand for goods or services in that industry and the total input coefficient for that industry. The main structural changes in China’s energy consumption by 2040 are driven by changes in the sectoral structure of final demand for goods and services. A decline in electricity demand from the construction sector and an increase in demand from households are expected. The electricity consumption growth index is projected to be no lower than the GDP growth index.