Forecasting industrial motor stock: Economic theory and policy analysis

The State Utility Forecasting Group (SUFG) at Purdue University utilizes econometric and end-use models to develop forecasts of electricity prices and demand on a timely basis for the Indiana Utility Regulatory Commission, in compliance with Indiana Code 8-1-8.5. As part of this procedure, SUFG must regularly update the forecast methodology. An end-use model of industrial electricity demand was developed to meet SUFG's needs, focusing on industrial consumption by electric motors, which comprise nearly 70 percent of total industrial consumption. The model builds a series of representative establishments within a given sector of industry based on known motor and establishment characteristics. Motors in the establishment are examined over a forecast horizon on a periodic basis and are replaced repaired, or retrofit with Adjustable Speed Drive technology. The most economic choice of competing alternatives is made based on the establishment's awareness of technology options and electricity costs, as well as technology availability. Growth in demand for output from the establishment is met by a combination of capacity expansion and increased capacity utilization. The model, coded in Visual Basic for Applications, is used to examine a series of cases with varying growth rates, electricity prices, new technology cost and availability estimates, regulatory standards, and establishment attitudes towards meeting growth in demand. The optimization module of the model is also used in the analysis of single motor cases. These cases provide an understanding of the impacts of legislation, technology awareness, and the cost of electricity on technology choice and the resultant electricity consumption. This understanding is especially important in the current economic climate where deregulation of electric power generation could lead to significant changes in electricity prices.