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Overview of PRIMES Model

Overview of PRIMES Model. Energy-Economy-Environment Modelling Laboratory at National Technical University of Athens, Greece. Economy. Demand. Supply. Prices. Environment. PRIMES Model. Economy system GDP, demographics, exchange and interest rates

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Overview of PRIMES Model

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  1. Overview of PRIMES Model Energy-Economy-Environment Modelling Laboratory at National Technical University of Athens, Greece

  2. Economy Demand Supply Prices Environment PRIMES Model Economy system • GDP, demographics, exchange and interest rates • Activity by sector (18 sectors), income of households Energy demand system • Consumption habits, durable goods and comfort • Manufacturing technology, kind of industry and energy needs • Transportation modes/means and technologies as drivers of energy needs Energy supply system • Primary energy supply • Secondary energy supply (power generation, refineries…) • Energy System Balances Energy Markets • Competition, price formation and regulation, import/export Environment Impacts • Energy-related emissions • Environmental impacts and pressures, damages • Preventive and corrective measures 3/6/2007

  3. Transport activity and flows SCENES model Macroeconomic/sectoral activity GEM-E3 model Energy demand-supply prices and market equilibrium for the EU area PRIMES model World energy oil, gas, coal prices POLES model EU power plants – ESAP Technologies: Tractebel EU refineries - IFP Renewables potential ECN, Observer Energy efficiency Wuppertal, … Environmental impacts RAINS PRIMES Linkages with other Models 3/6/2007

  4. PRIMES Model: Energy-Economy-Environment System Coverage • Geographical coverage • Each EU-27 member-state taken individually • In addition candidates and neighbours, such as Norway, Switzerland, Turkey • Western Balkan countries (under development) • Network coverage • Electricity and gas interconnections over Eurasia • Time frame • 2000 to 2030 by five-years periods • Seasonal and daily patterns for electricity, steam and gas load • Technologies: very detailed representation of demand and supply energy system 3/6/2007

  5. Important New Features in 2007 • Power Generation Investment • CCS technologies and potential • Retrofitting of power plants made endogenous • Extension of life time made endogenous • New Transport sub-model • New Gas Supply Model - Eurasia • Extended time horizon (2050) • More detailed modeling of biomass, new motor fuels and hydrogen • Explicit uncertainty considerations for PG investments 3/6/2007

  6. PRIMES Model: Energy-Economy-Environment System Coverage • 12 industrial sectors, subdivided into 26 sub-sectors using energy in 12 generic processes (e.g. air compression, furnaces) • 5 tertiary sectors, using energy in 6 processes (e.g. heating, air conditioning, office equipment) • 4 dwelling types using energy in 5 processes and 12 types of electrical durable goods (e.g. refrigerator, washing machine, television) • 4 transport modes, 10 transport means and 10 vehicle technologies • 14 fossil fuel types, 4 new fuel carriers (e.g. hydrogen, methanol, biofuels) and 10 renewable energy types • Energy supply sub-systems: power and steam generation, refineries, gas supply, biomass supply(*), hydrogen supply(*), primary energy production • 150 power and steam technologies integrated • 7 types of emissions from energy processes (partly unabated) 3/6/2007

  7. PRIMES model: Price-driven and agent-based simulation of markets • Fundamental distinction of PRIMES from other modelling methodologies: • The behaviour of agents is simulated separately from others (agents: e.g. households, steel industry, trade sector, power generation, etc.); the behaviour is modelled according to microeconomic theory, including behavioural patterns, such as habits, comfort, risk management and simultaneity with other economic decisions • As a result of individual behaviours, demand and supply of energies is formulated • A set of simultaneous energy markets are then cleared to determine prices that balance demand and supply; • Market equilibrium is static within a period but evolution is dynamic in a time forward manner as investment is endogenously driven by supply demand imbalances and technology profitability expectations. • A series of policies and measures, as well as external influences (like world energy price developments, macroeconomic activity, autonomous technology progress, …) drive behaviour and market equilibrium. 3/6/2007

  8. New Gas Supply sub-model of PRIMES

  9. Eurasian gas system • Gas system as a graph with Links and Nodes • Nodes • Gas demand (countries) • Gas production • Gas liquefaction • LNG gasification • Gas Storage • Links • Pipelines • LNG ship routes 3/6/2007

  10. Economic Agents in Gas Market • Gas Producers • Seeking maximisation of rents from intertemporal management of their exhaustible resource, selling to pool managed by TSO • Gas Suppliers and Traders • Seeking maximisation of profits, revenues from selling gas to consumers, costs from purchasing gas from pools managed by TSO • TSO (managing pipelines, liquefaction and LNG gasification) • Regulated maximisation of profits from balancing demand and supply at each gas consumption node • Gas Storage and LNG storage operators • Seeking maximisation of profits from exploiting storage facility • Gas consumers: behaviour according to a decreasing function of willingness to pay for gas 3/6/2007

  11. Technical Data • Pipeline, liquefaction, storage and LNG gasification capacities and investment are exogenous • Daily balancing of gas demand and supply • Balancing only concerns “mass” of gas • Flexibility constraints per type of gas facility represent technical constraints on operation and/or commercial restrictions • Demand detailed per load segment and linked with PRIMES projections 3/6/2007

  12. Economic Data • Gas production costs and rents represented by cost-supply curves with increasing slope, constrained by resource potential • Use of gas facilities entails variable (non linear) and fixed costs to recover • Gas supplier and gas producers are considered as separate companies • One gas supplier and one gas producer (if applicable) is considered by country • Every gas supplier and trader has possibility to sell to more than one country • A single TSO operates per country (over a single gas consumption node) • Demand functions are price elastic • Also, links with rest of world gas markets are price elastic 3/6/2007

  13. Gas Market Equilibrium • The model operates on an intertemporal basis from 2000 to 2030 and produces results by five years period • Competition is formulated as a Nash-Cournot game with conjectural variations • The model determines an oligopolistic market equilibrium and calculates: • Market prices of gas per country, year and load segment • Marginal prices reflecting congestion for each gas facility (pipeline, LNG terminal, storage, etc.) • Gas flows across the entire Eurasian gas system, per gas facility, year and load segment • Financial results per economic agent • The model is written in MCP mathematical form 3/6/2007

  14. Biomass supply and demand in the PRIMES energy model

  15. New development: biomass supply model into PRIMES energy model • PRIMES is a comprehensive energy demand and supply model, which is widely used in Europe for medium/long term sustainability policy analysis and for energy policy support • The new Biomass Supply model represents, in economic and engineering detail, the dynamic evolution of biomass supply system, including: • Primary supply of biomass and waste • Secondary transformation into biomass products • Bio-industries, including bio-refineries, producing a variety of energy carriers (bio-fuels, bio-gas, solid combustion biomass, hydrogen and materials) • Delivery of derived products to various sectors (power generation, final energy services, blending with hydrocarbons or coal, etc.)

  16. Methodology of biomass modelling • Primary supply of biomass and waste • Linkage with resource origin, availability and concurrent use (land, forestry, municipal waste, industrial waste, etc.) • Non linear supply curve per resource origin (with decreasing marginal productivity and upper limit on availability) • Secondary transformation into products • Cost of processing with strong economies of scale • Endogenous investment decisions with technology vintages • Bio-industries • System approach (network) to represent multiple links between bio-industries (for both inputs and outputs) • Dynamics of technology improvement • Details on processing costs and endogenous investment with vintages

  17. Methodology of biomass modelling • The biomass system model is an economic supply model: • Given demand for final biomass-related products (driven by the rest of sectors as in PRIMES model) • Given availability of primary biomass and waste resources • Given technology characteristics and technology progress potential (static and dynamic) • The Biomass model computes the optimal use of resources, investment in transformation and in bio-industry so as to meet demand • The Biomass model computes the prices of final biomass-related products that are inter-temporally necessary to cover the total long term marginal cost of biomass supply including return on initial fixed costs • Prices are conveyed to demand sectors (e.g. power generation, motor fuel consumers, other biomass users), which react and modify their demand behaviour, taking into account supply possibilities from other sub-systems (e.g. hydrocarbons) • Supply and demand interact until market equilibrium is reached

  18. Policy Analysis uses of the model • Biomass supply and prices may be influenced by • Technology progress and learning • Volume of demand (economies of scale) • Actions that increase primary resource availability • Taxes, subsidies • Policies, such as environmental measures • Lead to improvement of competitiveness of biomass supply relative to fossil fuel supply • Need blending of biomass to comply with standards (e.g. bio-fuels, co-firing) • Policies in other sectors strongly influence biomass supply • Agriculture policies • Waste management policies

  19. Primary resources Energy crops (4 cases) Agricultural Residues (4 cases) Forestry (2 cases) Waste (3 cases for industrial, 3 municipal waste, 2 other) Aquatic Secondary Products Pellets Wood Oil platform Sugar platform Solid waste Liquid waste Gas waste Bio-industries Biochemical Fermentation Enzymatic hydrolysis Anaerobic digestion Catalytic conversion Transesterification Thermo chemical Pyrolysis Hydrothermal Partial oxydation Gasification Partial oxidation Fluidized bed Steam flow Screw Auger Blending Bio-fuels, bio-gas, co-firing solid combustion, hydrogen, methanol, etc. Biomass model details

  20. Overview of Probabilistic Power Model • Objective function: maximize the probability that gross profit exceeds a certain minimum threshold • Optimisation is subject to strong regulation: • pricing to consumers should not exploit market power of the company, which means that gross operating profits are not allowed to exceed a certain threshold; • adequacy and reliability of electricity supply has to exceed a certain quality-related index (loss of load probability threshold); • environmental damages have to be below a certain threshold • Regulatory bodies usually set thresholds for the above issues • Optimization is also subject to usual technical constraints (e.g. energy and capacity constraints) • Random parameters that follow known distributions of probability • demand for electricity • prices of fossil fuels • cost of investment in new power generation plants per technology • limitation on emission of carbon dioxide from power generation

  21. Optional Probabilistic Power Generation and Investment • Probabilistic programming introduces probabilities as constraints and an objective function representing risk • x decision variables, r random parameters, G() profit or welfare outcome, g threshold, π value of probability

  22. ГАРМОНИЗАЦИЯ ЭНЕРГЕТИЧЕСКИХ ПОЛИТИК РОССИИ И ЕВРОПЕЙСКОГО СОЮЗА (ЭНЕРГЕТИЧЕСКИЙ ДИАЛОГ) HARMONIZATION OF ENERGY POLICIES OF RUSSIA AND THE EUROPEAN UNION (ENERGY DIALOGUE) Overview of Energy Outlook prepared with PRIMES Energy-Economy-Environment Modelling Laboratory at National Technical University of Athens, Greece

  23. Baseline Scenario Most likely development of energy system in the future, in the context of current knowledge, technology forecasting and policy objectives and actions “European energy and Transport – Trends to 2030 – update 2005 (may 2006)” 3/6/2007

  24. Major Updates • Data • Energy balances by member States (up to 2003) • Energy prices and fiscal policies (up to 2005) • Macroeconomic data (up to 2004) • Power generation data (2005) • 2005 updated statistics and latest potential estimations for renewables • Expected macroeconomic environment • higher energy import prices • more subdued economic growth prospects 3/6/2007

  25. Recent trends • Oil and gas prices are more than 50% higher than expected three years ago • Oil 55-60 $/bbl – Gas 6-7 $/MMBtu • Renewable support policies have promoted penetration of wind and other energies more than expected • Investment in combined cycle gas plants develops slower than expected, signals of reemergence of coal plant investment • Generally slowdown of investment under the context of liberalized market • Discussions about nuclear and coal for the longer term 3/6/2007

  26. International fuel prices • Oil prices reached 55$(2000)/boe in 2005 • gas prices are linked with oil prices • coal prices increase slowly after 2005 • Gas to coal competitiveness deteriorates over time 3/6/2007

  27. Relatively High Oil and Gas Prices 3/6/2007

  28. Competition Gas vs. Coal in Power Sector and ETS 3/6/2007

  29. Results of Baseline Scenario for DG TREN in late 2005 An updated new baseline is under development (expected for late March 2007)

  30. Major assumptions (2000-2030) • EU population increases by 0.1 % p.a. and the number of households grows by 0.8 % p.a. • steady GDP growth at 2.0% with slight slowdown after 2020 • dominated by the evolution of the EU-15 economy • structural changes away from the primary and secondary sectors and towards services and high value-added products continues 3/6/2007

  31. EU-25 Primary Energy Indicators (index 1990=100), 1995-2030 3/6/2007

  32. Baseline scenario resultsEU-25 primary energy needs • Solids: lower in the medium term but re-emerge in the long run • Natural Gas: important in medium term, 58% of incremental demand • Oil: sector-specific fuel, stable demand but maintains high share in consumption • Renewables: high growth but still have a low share (12% in 2030) • Nuclear: decreases after 2010, depends on plants’ lifetime and nuclear phase-out policies 3/6/2007

  33. Structure of primary energy demand in EU-25. 3/6/2007

  34. Mtoe 1990 2000 2010 2020 2030 Industry 341.1 330.1 356.4 382.4 391.6 En. intensive industries 216.8 211.6 220.8 228.4 224.9 Other industrial sectors 124.3 118.4 135.7 154.0 166.6 Domestic 407.6 432.3 500.5 550.6 576.6 Tertiary 146.6 159.0 188.5 211.9 225.3 Households 261.0 273.3 312.0 338.7 351.3 Transport 273.2 333.0 381.1 405.5 402.3 Total 1021.9 1095.4 1238.0 1338.5 1370.5 EU-15 866.5 970.7 1086.7 1155.1 1163.9 NMS 155.5 124.7 151.3 183.4 206.5 Annual Growth Rate (%) 90/00 00/10 10/20 20/30 00/30 Industry -0.3 0.8 0.7 0.2 0.6 En. intensive industries -0.2 0.4 0.3 -0.2 0.2 Other industrial sectors -0.5 1.4 1.3 0.8 1.1 Domestic 0.6 1.5 1.0 0.5 1.0 Tertiary 0.8 1.7 1.2 0.6 1.2 Households 0.5 1.3 0.8 0.4 0.8 Transport 2.0 1.4 0.6 -0.1 0.6 Total 0.7 1.2 0.8 0.2 0.7 EU-15 1.1 1.1 0.6 0.1 0.6 NMS -2.2 2.0 1.9 1.2 1.7 Final energy demand in EU-25 by sector 3/6/2007

  35. Final Energy Demand by fuel in EU-25. 3/6/2007

  36. Electricity generation by fuel in EU-25 3/6/2007

  37. Key indicators for the EU-25 energy system • Gas demand index: 2010= 177.4, 2020 = 203.3, 2030 = 198.8 • Gas intensity index: 2010 = 118.2, 2020 = 108.6, 2030 = 90.3 3/6/2007

  38. EU-25 Import dependence • Increasing energy dependence especially for gas • Related to high demand and reduced indigenous production • Need for secure and diversified supply 3/6/2007

  39. Gas balance (EU-25) • Observed evolution : 1990-2005 • consumption : +3.4 % p.a. • production : +1.7 % p.a. • Importation : +4.8% p.a. • Forecasted evolution : 2005-2030 • consumption : +0.8 % p.a. • production : - 3.2 % p.a. • Importation : +2.3% p.a. 3/6/2007

  40. Gas import sources (EU-25) • Market dominated by the three major suppliers : Norway, Russia and Algeria • 97% of EU-25 import in 2000 • 88% of EU-25 import in 2005 • 70-75 % in 2020 (source Eurogas) • 65-70 % in 2030 (source Eurogas) • Increasing contribution of GNL expected in the future • 18% in 2000 • 15% in 2005 • 20-25 % in 2020 (Eurogas – Petroleum Economist) • 25-35 % in 2030 (Eurogas – Petroleum Economist) 3/6/2007

  41. Security of Supply for the EU 3/6/2007

  42. Gas import sources to Europe 3/6/2007

  43. Comparison of 2005 Baseline with the older 2002 Baseline Significant changes in fuel mix for power generation

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  49. Recent Scenarios with PRIMES • Renewables development for 20% • Energy Efficiency targets for 20% • Combined Renewables and Efficiency • Carbon reduction Scenarios (-30% in 2030) • Sensitivities regarding the role of Nuclear • Sensitivities regarding the role of CCS • Sensitivities regarding higher use of electricity • Analysis of ETS and the NAPs 3/6/2007

  50. Extracts from Scenario Analysis “European energy and Transport – Scenarios on energy efficiency and renewables (July 2006)” • “Energy efficiency” case • “High Renewables” case • “Combined high renewables and efficiency” case • These scenarios make the same assumptions as baseline for: • macroeconomic scenario • international price scenario • continuation of existing nuclear policies in EU M.S.… 3/6/2007

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