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This research project utilizes the principle of System Dynamics to establish an interactive model that analyze the causal relationship between the economy growth and the electricity consumption in Taiwan. The purpose of the research is to develop a tool that could aid in the design of energy policies by the government through the use of a technique called Scenario Analysis for electricity demand and supply. This can be achieved through the use of the Interlock and Feedback characteristics featured in System Dynamics model. A recent review of research literature on electricity supply and demand published by other countries shows that very few research has taken into consideration the differences in the nature of electric consumption among various industrial sectors. The absolute majority of the research literature are focusing on the verification of the relationship between the electricity consumption and the economic growth. It is for this reason that this research not only analyzes the relationship between the overall electricity consumption and the economic growth, but also attempts to explore further into the electricity consumption by dividing the general industries into 6 sectors: industrial, residential, service, transportation, agricultural, and energy. The relationship between the economic growth and the electricity consumption within each individual industrial sector has been explored so that a conclusion can be drawn whether the current energy structure and policy will meet the forecast of future economic growth. This research will provide a good reference for the responsible divisions in the government to make future energy and electricity development policies. Through evidence-based analyses on the GDP growth and the electricity consumption, it is discovered that, in short term, the overall electricity consumption and the economic growth manifests a one-way causal relationship in which the electricity consumption is the cause and the economic growth being the effect; whereas, under longer term observation, it is evident that the economic growth has a one-way causal relationship to the electricity consumption. However, through a statistical standard deviation comparison and analysis, it can be demonstrated that the economic growth and the electricity consumption manifest a mutual causal relationship. Generally speaking, the economic growth and the overall electricity consumption in Taiwan are of a by-directional causal relationship with mutual feedback. In the industrial sector, the result shows that the increase in industrial electricity consumption will increase the GDP growth. Since the variation in the industrial electricity consumption will a direct impact on the economic growth, from the policy making standpoint, implementation of any electricity conservation policy must be reviewed with cautions. Emphasis shall be placed on measures and sequences to be taken in order to avoid any over-conservation that could have a adverse impact on the national economy. In the residential and service sectors, this research uses the results from statistical standard deviation comparisons and analyses where the variations in electricity consumption are very slow and stable, and will not impact the economic growth. Therefore, it can be concluded that electricity conservation measures proposed for the residential and service sectors are a feasible policy tool to be implemented by the electricity management authority. Taiwan is an energy deprived country, the dependency on imported energy is more than 90%. The scale of domestic energy supply is small, isolated, and lacks an energy backup system. In view of the domestic demand, industrial development, overall economic growth, environmental sustainability and social justice, Taiwan needs to invest more resources into the electrical infrastructure to meet the increase in the electricity demand. Taiwan's long term average electricity price tends to be low and there is a lack of incentive for the general industries to conserve energy. It is herewith recommended that the energy pricing structure be rationalized so that the electricity price reflects both the internal and external costs. This will effectively incentivize energy conservation for the entire industries in Taiwan.
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