Energy-Economy Modeling:
Principles and Applications
Youngho Chang
Division of Economics and ERI@N
Nanyang Technological University
29 June 2013
Workshop at Meijo University
Agenda
 Models
in energy sector
 Analysis of energy technologies
 Economic impacts of energy
choice
 Conclusions
2
Energy


Socio economic development and energy
Rise in oil price


is a reminder of resource crunch that must be
continuously tackled
Energy supply must be done more efficiently
and with more environmentally friendly and
efficient technology

This also means that energy demand must also
be managed
3
Group of Energy Resources

Traditional (often called biomass resources )


Commercial


fuelwood, crop residues and livestock residues
 due to large volume and traditional use, they fall under
traditional category
 They are considered non-monetized although they are sold
in some of the markets
fossil fuels and electricity
 both can be used to obtain an energy service
Non-conventional or renewable

mainly renewable energy sources such as solar wind and
biogas.
4
What Is a Model?

We must understand the best way to supply
energy for a reasonable demand


Various types of models available


Therefore, two end points are supply and demand
Suitability of model depends on the goal of modeling,
data and software availability and competence of the
modeler.
Simplification of complex amalgamation of
systems and variables.


Back of the envelope calculations.
Complex computer calculations
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Energy Modeling

Model types




Supply based models
Demand based models
Hybrid models
 Simulation models can fall under this category as well
(ENPEP/BALANCE, Energy 20/20)
In the analysis of climate/energy related policies,
two general types of models have been used:


Top-down (e.g., general equilibrium or macro-economic
frameworks); and
Bottom-Up (e.g., energy system models).
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Supply based models

Accounting model
 Mainly based on database

If the status quo pattern stays, what would be the energy
requirement—most popularly used model
Long Range Energy Alternatives Planning Model (LEAP)
Optimization models
 Linear to non-linear optimization models





Developed a multi-period linear optimization model with stochastic
and non-stochastic parameters
Combining generation and transmission
Market Allocation Model (MARKAL)

Both are mainly used on a macro level- country level energy analysis
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Hybrid model

Econometric model


various socio-economic parameters
 population, stretch of road (KM extension), number of
vehicles, number of houses built, economic performance of
the country, and family income.
Based on time series data of actual consumption.



y  ax x
b c
1 2
The best model fits the actual consumption.
The projection is based on the status of parameters
assumed for the future.
Econometric models are not the end but the
beginning of energy modeling exercise
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Econometric model

Good for medium range planning (5-10 years)


But economy is changing very fast
 As the structure of economy can change, the pattern of
energy consumption might also change
Many companies manufacturing heavy equipment have
shifted to China.
 This changes the requirement for reliable motor power
 This will also shift the energy requirement to other sector
such as servicing

Singapore, Hong Kong, Britain’s economy has shifted from
materialized economy (heavy manufacturing) to non materialized
economy
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Changing economic structure
10
http://www.sml.hw.ac.uk/logistics/Decoupling_of_Road-tonne-km_and_GDP.pdf
Reference Energy System
Resource
Extraction
Other
Sources
Crude Oil
Refining &
Conversion
Transport
Generation
Transmission
& Distribution
Utilization
Devices
End-use
Air-conditioning
*
Refined Products
Renewables
Electricity
Coal
Natural Gas
Space Heating
Water Heating
Office Equipments
Misc. Electric Building
Misc. Electric Industrial
Nuclear
Process Heat
*Electrolysis
Petro/Biochemicals
Hydrogen
Fuel-Cell
Other Transportation
Passenger Travel
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Model Building Blocks - Data Categories
Primary Energy
Supply
Conversion
Technologies
End-Use
Technologies
(Final Energy)
Renewables e.g.
-Biomass
-Hydro
Mining e.g.
-Crude oil
-Natural gas
-Coal
Imports e.g.
-crude oil
-oil products
Exports e.g.
-oil products
-coal
Stock changes
Fuel processing
Plants e.g.
-Oil refineries
-Hydrogen prod.
-Ethanol prod.
Power plants e.g.
-Conventional
Fossil Fueled
-Solar
-Wind
-Nuclear
-CCGT
-Fuel Cells
-Combined Heat
and Power
(Useful Energy)
Industry, e.g.
-Steam boilers
-Machinery
Services, e.g.
-Air conditioners
-Light bulbs
Households, e.g.
-Space heaters
-Refrigerators
Agriculture, e.g.
-Irrigation pumps
Transport, e.g.
-Gasoline Car
-Fuel Cell Bus
Demand for
Energy Service
Industry, e.g.
-Process steam
-Motive power
Services, e.g.
-Cooling
-Lighting
Households, e.g.
-Space heat
-Refrigeration
Agriculture, e.g.
-Water supply
Transport, e.g.
-Person-km
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The MARKAL Model
•
RESOURCES
PROCESSES
GENERATION
ENERGY SERVICES
(Final Energy)
(Useful Energy)
IMPORT
•
ELECTRICITY
REFINERIES
MINING
&
RENEW.
END-USE
HEAT
FUEL
PROCESSING
STOCKS
EMISSIONS
CONTROLS
EXPORT
DEVICES
D
E
M
A
N
D
S
•
PIPELINES
•
Utilizes a bottom-up approach to
represent and characterize
technology specific portfolios of
the entire energy - materials flow
system – synergies, offset and
feedback effects
Provides a dynamic integrated
framework to assess market
competition, technology diffusion
and emission/waste accounting
Facilitates Program Managers in
selecting technology mix over the
entire energy - materials system
based on life cycle accounting and
least cost
Solves as a mathematical
programming problem
13
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15
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18
19
20
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MARKAL-MACRO Overview
ENERGY SOURCES
TECHNOLOGY CHARACTERISTICS
ENVIRONMENTAL CONSTRAINTS &
POLICIES
LABOR
GDP
CONSUMPTION
USEFUL
ENERGY
SERVICES
MARKAL
MACRO
ENERGY
PAYMENTS
INVESTMENT
CAPITAL
TECHNOLOGY MIX
FUEL MIX
EMISSIONS SOURCES & LEVELS
FUEL & EMISSION MARGINAL COSTS
RANKING OF MITIGATION OPTIONS
22
How MARKAL-MACRO Reacts to
Environmental Constraints?




Intra-technology substitution (i.e., within a particular
technology category) occurs to meet the energy
demand more efficiently.
Inter-technology substitution (i.e., among competing
technologies servicing a particular energy demand)
occurs.
Less carbon-intensive energy resources/ fuels are
used to meet energy demands across sectors.
It reduces energy demand, which reduces economic
output consequently.
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Example
Industrial Low Heat under No Carbon Constraint
400
350
300
PJ
250
200
150
100
50
0
2009
2021
Current Diesel Tech
Advanced Diesel Tech
Current FO Tech
Advanced NG Tech
Current RG Tech
Advanced RG Tech
2030
Advanced FO Tech
Current NG Tech
Industrial Low Heat under Carbon Constraint
180
160
140
120
PJ
100
80
60
40
20
0
2009
2021
Current Diesel tech
Advanced diesel Tech
Current FO Tech
Advanced NG Tech
Current RG Teck
Advanced RG Tech
2030
Advanced FO Tech
Current NG Tech
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