Inter-fuel substitution in European industry: A random utility approach on industrial heat demand

Abstract

As the majority of industrial emissions stems from heat generation, the choice of fuel is, next to energy efficiency, one of the tools to influence climate impact (and security of supply) in industrial energy use. At the same time, the choice of fuel is not only a matter of price but of the furnace, it is used in. Top-down models often struggle to include technological explicitness, which is especially important to represent the heterogeneous structure of industrial energy demand. In this paper, an approach to apply a discrete choice model to industrial high temperature energy demand is presented. The model's parameters are estimated based on observed fuel choices. The model exhibits an average coefficient of determination of 0.45 when compared to a constant fuel use from 2002 to 2013 in major countries of the European Union. Results suggest that energy carriers are perceived very differently by industrial consumers.