1. Gestão de Energia: 2015/16 Energy Analysis: Process Analysis (cont.) Energy and Economy (cont.) Prof. Tânia Sousa taniasousa@ist.utl.pt

2. Energy Analyis: Energy & material inputs What is the meaning of E 1 ? –E 1 is the total energy used to produce m 1 For consistency purposes what should be the meaning of E A ?

3. Energy Analyis: Energy & material inputs What is the meaning of E 1 ? –E 1 is the total energy used to produce m 1 For consistency purposes what should be the meaning of E A ? –E A should be the total energy used to produce that energy consumption, i.e., E A should be the primary energy associated with the final energy input –To merge several kinds of final energy first convert each one to primary energy and then make the sum

4. Energy Analyis: Energy & material inputs What is the meaning of 0.215 tep/MWh for electricity?

5. Energy Analyis: Energy & material inputs What is the meaning of 0.215 tep/MWh for electricity? Compute the efficiency

6. Typical values of 1 st law efficiencies 1 st Law efficiencies from primary to final energy

7. Energy Analyis: Energy & material inputs What is the meaning of 0.215 tep/MWh for electricity? Compute the efficiency Should this factor be country-specific?

8. Energy Analyis: Energy efficiency measures What is the impact of an energy efficiency measure that decreases CE A on CE 12 ? EAEA 6 D E C G A 11 10 9 7 5 2 F 1 4 B 3 6 128

9. Energy Analyis: Energy & material inputs What is the meaning of 0.215 tep/MWh for electricity? Compute the efficiency Should this factor be country-specific? Does the CE of a product (same technology and the same inputs) change with the country where it is produced? Renault Duster (Russia) Nissan Terrano (India)

10. Energy Management Class # 9 : Energy Economics Links Energy-Economy-Environment What will the economy in the future look like? More self-reliant local economies and ways of life Global Economy dependent on renewable energies Similar to the present but bigger Models will help us understand the impact of energy supply & technological innovations & policy measures on the environment and the economy?

11. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 1.Trade-offs for people between environmental quality ( with the use of energy) and income ( with the use of energy) –Is GDP enough?

12. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 1.Trade-offs for people between environmental quality ( with the use of energy) and income ( with the use of energy) –GDP: There are important factors for the quality of life such as inequality in the society, environmental quality and unemployment rate that are related with GDP but that are not controlled only by GDP (http://www.beyond-gdp.eu/)

13. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 1.Trade-offs for people between environmental quality ( with the use of energy) and income ( with the use of energy) 1Norway0.944 2Australia0.935 3Switzerland0.930 4Denmark0.923 5Netherlands0.922 6Germany0.916 6Ireland0.916 8United States0.915 9Canada0.913 9New Zealand0.913 178Guinea-Bissau0.420 179Mali0.419 180Mozambique0.416 181Sierra Leone0.413 182Guinea0.411 183Burkina Faso0.402 184Burundi0.400 185Chad0.392 186Eritrea0.391 187Central African Republic0.350 188Niger0.348

14. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions

15. Energy Management Class # 9 : Energy Economics Utility functions: a review Utility functions specify the hapiness U of a person or a population as a function of consumed goods X 1, X 2, …: Examples: Issues: Indiference curves (substitutability between goods) Cobb-Douglas Utility Function Linear Utility Function Leontief Utility Function x1x1 x2x2 U(x 1,x 2 ) = x 1 x 2 ;

16. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 2.How much can energy be replaced by other productive factors? Examples?

17. Energy Management Class # 9 : Energy Economics

18. Energy Management Class # 9 : Energy Economics Production Functions: a review Production functions specify the output Q of an economy as a function of inputs X 1, X 2, …: Examples: Issues: What are the relevant production factors (K, L, E, M, T, ….) How much are they substitutable? Cobb-Douglas Production Function Linear Production Function Leontief Production Function

19. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 2.How much can energy be replaced by other productive factors? –Production functions that have energy as a production factor, e.g., LINEX (Ayres):

20. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 3.How much are different forms of energy replaceable by each other? –Transport is the most problematic use –Possibility of replacing oil liquids in internal combustion engines by more efficiency, other fossil (coal-to-liquids, tar sands, oil shale) or renewables (ethanol, biodiesel) Electric cars (driving range; Recharge time, 4 to 8 hours, battery cost, bulk & weight) Hydrogen cars (hydrogen infrastructure and cost)

21. Energy Management Class # 9 : Energy Economics 4.What is the energy that really matters (primary, final, useful, productive or useful work)?useful work –During the twentieth century the quantity of final energy taken from one unit of primary energy has doubled or even tripled –The energy that is more intimated related with productivity is the productive energy but this is also the most difficult one to quantify –What about the energy used for non-productive activities? Issues in modeling energy-economy interactions

22. Energy Management Class # 9 : Energy Economics Energy Economy Interactions: useful work accounting Definition of uses. 5 categories of use: High Temperature Heat Medium Temperature Heat Low Temperature Heat Heat Light Mechanical Drive Muscle Work Other electric uses

23. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 5.Investment in renewable energies and energy efficiency technologies – Depends on the price of fossil fuels; the power of the sun to enrich our lives as we move away from our crippling dependence on foreign oil.” Jimmy Carter, 1979

24. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 5.Investment in renewable energies and energy efficiency technologies – Controls conversion efficiencies between primary, final and useful energy; – Controls price of renewable energies;

25. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 6.Oil Price – Depends on demand vs. supply – Depends on speculation in financial markets; – Controls behavior of energy firms (e.g., investments in new oil fields) – The amount of reserves

26. Energy Management Class # 9 : Energy Economics Issues in modeling energy-economy interactions 7.Energy game changers such as accidents (Japan, 2010) OVER 70% OF JAPANESE AGAINST NUCLEAR POWER PLANTS AFTER FUKUSHIMA TRAGEDY

27. Energy Management Class # 9 : Energy Economics City ON – an energy-economy model Energy (electricity) is the only production factor Electricity has both a productive (industry and services consumption) and non- productive (residential and municipal consumption) role Services and industry produce added-value to the economy as a whole

28. Energy Management Class # 9 : Energy Economics City ON – an energy-economy model The central planner splits income between building power plants, technology development, resources (constant prices) and consumption Households have an utility function that depends on pollution generated by the electricity production sector and useful consumption Transformation between final and useful consumption depends on efficiency A central planner has to keep people happy (high useful consumption + low pollution)

29. Energy Management Class # 9 : Energy Economics City ON – an energy-economy model Power plants can be renewable and non-renewable. Non-renewable power plants pollute & Renewable plants depend on wind, sun and water availability Characterizationof power plants and technology development (& investment) were realistic

30. Energy Management Class # 9 : Energy Economics City ON – an energy-economy model This model was used by Biodroid to develop a serious game to EDP It was applied to Portugal with some adjustments to forecast optimal electricity production & GDP evolution –Supply should have a more relevant role for renewables due to environmental impacts.

31. Energy Management Class # 9 : Energy Economics City ON – an energy-economy model Improvements??

32. Energy Management Class # 9 : Energy Economics Energy Wars – an energy-economy model Introduce more production factors (labor, capital and technology) Introduce energy scarcity to simulate dependence of economic growth on energy Introduce more types of energy (at least oil & renewable electricity) to simulate whether the economy can make a smooth transition between fossils and renewables Introduce mechanisms that are relevant for the oil price formation (speculation, decisions on investments by energy firms, decisions of oil consumption by non-energy firms and households) There is no central planner to make decisions, i.e., households, the energy sector and the non-energy sector have internal dynamics A set of 3 models: a macroeconomic model, and 2 agent- based models for energy firms and for financial markets

33. Energy Management Class # 9 : Energy Economics Energy Wars: The macroeconomic model

34. Energy Management Class # 9 : Energy Economics Were do Energy Companies Invest? Research Oil & Gas Renewables Storage Financial Market Energy Wars – An agent based model for energy firms Companies have to deal with huge investements lags: 7-10 years Hydrocarbons scarcity push Oil&Gas companies to renewables Market Structure: Oligopolist –Very capital intensive industry > Few companies control the market Model : hydrocarbons depletion renewable penetration

35. Energy Management Class # 9 : Energy Economics Energy Wars – An agent based model for the financial market A limited number of intelligent, but boundedly rational financial agents; Agents use different heuristic trading rules to buy or sell oil future contracts; Fundamental rules: use real variables such as change in oil stocks or GDP growth to predict future oil prices Technical rules: use historical price series to predict future oil prices From the mismatch of supply vs. demand emerges a price

36. Energy Management Class # 9 : Energy Economics Energy Wars – Interaction between models Macroeconomic model Agent-based financial model Agent-based energy firms model Oil Price GDP Oil Stock changes Oil Supply Oil Price Taxa juro GDP

37. Exercise A factory produces 2 end products: P1 and P2. These products follow the production process shown in the diagram below, with P1 = 50000 ton/year and P2 = 30000 ton/year. The operation G treats the effluents from E and F. These two (E and F) are the only productive operations that generate waste, and S E = 1.2, S F = 1.3. In operation G, only 20% of the input effluent, exits the process as waste. The values of composition are as follows: f 4 = 0.4, f 6 = 0.5. The table presents the specific consumption of each operation. Consider that for electricity: 0.215 kgep/kWh and for fueloil 0.984 kgep/kg. Calculate f 13 8 (produção 1) A C D E B 2 1 F G 14 13 12 11 10 (produção 2) 3 4 5 6 7 9

38. Exercise 8 (produção 1) A C D E B 2 1 F G 14 13 12 11 50000 30000 10000 39000 9000 3800 15200 27600 41400 42400

39. Exercise A factory produces 2 end products: P1 and P2. These products follow the production process shown in the diagram below, with P1 = 50000 ton/year and P2 = 30000 ton/year. The operation G treats the effluents from E and F. These two (E and F) are the only productive operations that generate waste, and S E = 1.2, S F = 1.3. In operation G, only 20% of the input effluent, exits the process as waste. The values of composition are as follows: f 4 = 0.4, f 6 = 0.5. The table presents the specific consumption of each operation. Consider that for electricity: 0.215 kgep/kWh and for fueloil 0.984 kgep/kg. What is the specific consumption of each operation?

40. Exercise

41. A factory produces 2 end products: P1 and P2. These products follow the production process shown in the diagram below, with P1 = 50000 ton/year and P2 = 30000 ton/year. The operation G treats the effluents from E and F. These two (E and F) are the only productive operations that generate waste, and S E = 1.2, S F = 1.3. In operation G, only 20% of the input effluent, exits the process as waste. The values of composition are as follows: f 4 = 0.4, f 6 = 0.5. The table presents the specific consumption of each operation. Consider that for electricity: 0.215 kgep/kWh and for fueloil 0.984 kgep/kg. What is the specific consumption of each product? 8 (produção 1) A C D E B 2 1 F G 14 13 12 11 10 (produção 2) 3 4 5 6 7 9

42. Exercise

43. A factory produces 2 end products: P1 and P2. These products follow the production process shown in the diagram below, with P1 = 50000 ton/year and P2 = 30000 ton/year. The operation G treats the effluents from E and F. These two (E and F) are the only productive operations that generate waste, and S E = 1.2, S F = 1.3. In operation G, only 20% of the input effluent, exits the process as waste. The values of composition are as follows: f 4 = 0.4, f 6 = 0.5. The table presents the specific consumption of each operation. Consider that for electricity: 0.215 kgep/kWh and for fueloil 0.984 kgep/kg. In which product will a measure of energy savings implemented in the operation A reduce more the specific consumption? 8 (produção 1) A C D E B 2 1 F G 14 13 12 11 10 (produção 2) 3 4 5 6 7 9

44. Exercise