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

2. 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

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

5. 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

6. Process Engineering Example: Choice of Electric Power Plants

7. Process Analysis: Basic Cost Data Capital Cost Fixed O&M Cost Variable O&M Cost Fuel Technology($/kW)($/kW)($/kWhr)($/Mbtu) Nuclear192560.84.000450.43 Coal112225.51.003191.27 Gas CC 58610.63.002123.4 Gas CT 4578.5.003193.4 Solar PV 352610.4700 Solar Thermal 229350.8800 Wind97627.1500

8. Process Analysis: Basic Performance Data Years to Construct Plant Size Ave.CapacityFactor Heat Rate Technology(Years)(MW)(%)(Mbtu/KWhr) Nuclear56009010400 Coal4400859000 Gas CC 3400857000 Gas CT 2120309394 Solar PV 252510280 Solar Thermal 31002510280 Wind3502910280

9. 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

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

13. Resource Supply Curves

14. Demands for Energy Fuels

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

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

17. 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

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

19. 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