Overview of Energy- Environment Modeling MS&E 290: Public Policy Analysis February 22, 2005

Agenda Energy System Diagrams Energy System Diagrams Process Engineering and Levelized Costs Process Engineering and Levelized Costs Resource Supply and Fuel Demands Resource Supply and Fuel Demands Equilibrium and Welfare Equilibrium and Welfare Economy-Wide Feedbacks Economy-Wide Feedbacks

Resource Extraction Refining and Conversion TransportGeneration Transmission and Distribution Utilizing Device End Use Example Energy System Diagram DGl Hydrogen Ethanol

Generic Types of Energy/Environment Policy Models Process Engineering Process Engineering Individual Technologies Represented Individual Technologies Represented Need to Add in Market and Economy Wide Effects Need to Add in Market and Economy Wide Effects Energy Market Models Energy Market Models Bring in Energy Market Feedbacks Bring in Energy Market Feedbacks Weaker on Technology & Economy Weaker on Technology & Economy General Equilibrium Models General Equilibrium Models Bring in Economy-Wide Feedbacks Bring in Economy-Wide Feedbacks Weaker on Energy Markets and Technology Weaker on Energy Markets and Technology

Process Engineering Example: Choice of Electric Power Plants

Process Analysis: Basic Cost Data Capital Cost Fixed O&M Cost Variable O&M Cost Fuel Technology($/kW)($/kW)($/kWhr)($/Mbtu) Nuclear Coal Gas CC Gas CT Solar PV Solar Thermal Wind

Process Analysis: Basic Performance Data Years to Construct Plant Size Ave.CapacityFactor Heat Rate Technology(Years)(MW)(%)(Mbtu/KWhr) Nuclear Coal Gas CC Gas CT Solar PV Solar Thermal Wind

Levelized Cost = I*CRF + O&M + F Q Q Q Where: I = Capital investment, including financing. CRF = Capital Recovery Factor O&M = Fixed and variable O&M F = Fuel cost Q = Annual plant output (kWhr) CRF = r n (1 + r )n (1+r) n – 1 r = real discount rate (like interest rate) n = plant life Levelized Generation Cost Methodology

Resource Extraction Refining and Conversion TransportGeneration Transmission and Distribution Utilizing Device End Use Example Energy System Diagram DGl Hydrogen Ethanol

Resource Supply Curves

Demands for Energy Fuels

Demand for Oil Price Quantity Demand or Willingness to Pay Gain in Consumers’ Surplus From Price Drop

Supply of Oil Price Quantity Supply or Cost of Resource Extraction Producers’ Surplus Loss From Price Drop

Supply/Demand Equilibrium In Oil Market Price Quantity Demand or Willingness to Pay Supply or Cost of Resource Extraction Supply/Demand Equilibrium Maximizes Consumers’ Plus Producers’ Surplus

Assessing Economy Wide Feedbacks: Using Economy-Wide Production Functions Y = F(K,L,E,M)

Some Additional Issues In Energy- Environmental Modeling Technology Development Technology Development Endogenous Endogenous Policy Driven Policy Driven International Trade International Trade International Security International Security