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Diverse Technologies

Diverse Technologies . Section 5.3. Different Technologies/Different uses. Accounting for the different technologies available (coal, nuclear, hydro, natural gas, renewables) allows for a more general model than the fixed-coefficient model, but more specific than the general neoclassical model.

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Diverse Technologies

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  1. Diverse Technologies Section 5.3

  2. Different Technologies/Different uses • Accounting for the different technologies available (coal, nuclear, hydro, natural gas, renewables) allows for a more general model than the fixed-coefficient model, but more specific than the general neoclassical model. • Different uses require implementing different technologies. Peak load, intermediate load, and baseload generation all serve different times of use.

  3. Distinction in costs • Baseload generation exhibits • High capacity costs (KW) • Low operating costs (KWh) • Examples, coal, nuclear, hydro • Peak generation exhibits • Low capacity costs (KW) • High operating costs (KWh) • Examples, natural gas, peak, biomass

  4. Modeling costs • Let βi = capacity costs for technology i • Let bi = variable costs for technology i • Let • 1 = peak • 2 = intermediate • 3 = baseload • For all three to be employable, • b1 > b2 > b3 • Β1<β2 <β3

  5. Operating for 1 year • 100 KW • =>100 KWh in a hour • =>8,760 KWh in a year • Then marginal cost can be written as • MCi(αi)= αi bi +βi • The marginal cost of adding 1 more unit of KW capacity for technology I • αiis the percent of the year capacity is utilized

  6. Solve for optimal operation time • α*1is found by solving MC1= MC2 • α*2 is found by solving MC2= MC3 • Thus, for a new technology (0) to be adopted • b0 < bi • β0 < βi • For some technology i

  7. Suppose capacity is fully utilized • Demand increase by 1KW for α0 percent of the year • Let α*1 <α0 < α*2 • Graphically, we can see that we would build technology 2, intermediate generating capacity. • To illustrate this mathematically, we demonstrate that • MC1 (α0) – MC2(α0) >0 • And • MC3(α0) – MC2(α0) >0

  8. Comments • The greater the portion of the year a given demand must be met, the more advantageous base-load capacity becomes • For short periods of demand, operating cost is less important, and the least-cost solution is low capacity

  9. Welfare Max Model • Allowing 3 demand periods • Independent demand curves • 3 production technologies • Results in the following optimal prices • Derived prices are complex forms of the fixed-coefficient technology • Ensures TR=TC

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