Modeling Energy Technologies in EPPA

Transcription

1 Modeling Energy Technologies in EPPA Jennifer Morris EPPA Training Workshop 2016 Sept 29- Oct 2

2 Modeling Energy Technologies How many/which technologies to represent? 2

3 Energy Technologies in EPPA 3 Non-Energy Crops Livestock Forestry Food Energy Intensive Ind. Manufacturing Services Industrial Transport Household Transport Vehicle Types Gasoline & diesel cars, Plug-in Electrics, Pure electrics, Flex-fuel, CNG Energy Crude oil Refined oil Liquid fuel from biomass Oil Shale Coal Natural gas (conv, shale, tight, CBM) Electricity Synthetic gas (from coal) Biofuels Ethanol from Sugar & Grain 2 nd generation Biodiesel from Oilseed & palm oil

4 Power Generation Technologies in EPPA Coal Natural Gas Oil Nuclear Hydro Wind Solar Biomass Advanced Coal Advanced Natural Gas Advanced Coal with CCS Advanced Natural Gas with CCS Advanced Nuclear Wind with Natural Gas Backup Wind with Biomass Backup Biomass with CCS Main version of EPPA combines baseload and peaking generation 4

5 Modeling Energy Technologies How many/which technologies to represent? How to represent the technology in the model? Production function Output Nesting Structure Substitution possibilities 5

6 Example Production Function Electricity Output σ SSF Technology- Specific Factor Transmission & Distribution Generation & Sequestration σ TD σ PT Capital Labor Carbon Permits Fuel (COAL or GAS) Generation σ GVA Sequestration σ SVA Capital Labor Capital Labor 6

7 Modeling Energy Technologies How many/which technologies to represent? How represent the technology in the model? Production function Output Nesting Structure Substitution possibilities What is the cost of the technology? Data sources? 7

8 Technology Costs in EPPA Key Components of Technology Costs: 1) Cost shares 2) Markup 3) Elasticities of substitution Key Processes Affecting Technology Costs: 1) Total Factor Productivity (TFP) 2) Energy Productivity Improvement 3) Price- Induced Changes 4) Technology Specific Factor (TSF) 8

9 Key Components of Technology Costs in EPPA Cost Shares Share of generation cost attributable to each input factor (capital, labor, fuel, etc.) Shares sum to 1 by design Calculated from LCOE table, with adjustments (e.g. for land and TSF) Factors Wind Factor Shares Biomass Factor Shares NGCC Factor Shares K L TSF FFA LND 0.19 GAS 0.44 TOTAL

10 Key Components of Technology Costs in EPPA Markup Cost of technology relative to conventional pulverized coal in the base year of model e.g. a markup value of 1.2 means in the base year it is 20% more expensive to operate the technology than conventional coal technology (which by design has a markup value of 1) Calculated from LCOE table Key notes: - EPPA cares about relative costs and prices - Markups and cost shares are used to define technologies and their costs for the base year of the model. In other years relative costs change endogenously in the model as the cost of inputs change and substitution among inputs occurs 10

11 Key Components of Technology Costs in EPPA Elasticities of Substitution Ability to substitute between inputs From literature, best guesses 11

12 Levelized Cost of Electricity (LCOE) LCOE is the constant price that should be sustained over time for the plant owner to be able to pay all costs, including interest and returns on equity Break- even price which ensures that over the whole period discounted revenues equal discounted costs, making NPV equal to zero. Common and simple way to compare technologies Approach is flawed: assumes electricity generated from different sources has the same value, which is not necessarily the caseà intermittent vs. dispatchable Will discuss how we deal with this 12

13 LCOE Calculation TCR * CRC FOM LCOE = + + VOM + OH OH FC TCR is total capital requirement (overnight capital costs + construction schedule cost), r 1- (1 + r) CRC is capital recovery charge: CRC = (r = discount rate, n = financial life of project = 20 yr) OH is operating hours: capacity factor * hours in year - n FOM is fixed O&M, VOM is variable O&M per kwh, FC is fuel cost per kwh: $/BTU * Heat Rate (BTU/kWh) 13

14 LCOE Table (based on EIA AEO 2015) Units New Pulverized Coal Pulverized Coal with CCS Biomass plant Biomass plant with CCs NGCC NGCC with CCS Advanced Nuclear Wind Solar Thermal Solar PV Wind Plus Biomass Backup [a] [1] "Overnight" Capital Cost $/kw [2] Total Capital Requirement $/kw [3] Capital Recovery Charge Rate % 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6% [4] Fixed O&M $/kw [5] Variable O&M $/kwh [6] Project Life years [7] Capacity Factor % 85% 85% 80% 80% 85% 80% 85% 35% 35% 26% 42% 42% [8] Capacity Factor Wind 35% 35% [9] Capacity Factor Backup 7% 7% [10] Operating Hours hours [11] Capital Recovery Required $/kwh [12] Fixed O&M Recovery Required $/kwh [13] Heat Rate BTU/kWh [14] Fuel Cost $/MMBTU [15] Fraction Backup % 8.8% 8.2% [16] Fuel Cost per kwh $/kwh [17] Levelized Cost of Electricity $/kwh [18] Transmission and Distribution $/kwh [19] LCOE with T&D $/kwh [20] Markup Over New Pulverized Coal For CCS [21] Amount Fossil Fuel EJ/KWh 1E-11 2E-11 8E-12 [22] Carbon Content mmtc/ej [23] Carbon Emissions mmtc/kwh [24] Carbon Dioxide Emissions tco2/kwh [25] CO2 Emissions after 90% Capture tco2/kwh E-05 [26] Cost of CO2 T&S per ton $/tco [27] CO2 Transportation &Storage Cost $/KWh Wind Plus Gas Backup [a] 14

15 Cost Shares and Markups from LCOE Units NGCC with CCS [1] "Overnight" Capital Cost $/kw 2003 [2] Total Capital Requirement $/kw 2244 [3] Capital Recovery Charge Rate % 10.6% [4] Fixed O&M $/kw 30.7 [5] Variable O&M $/kwh [6] Project Life years 20 [7] Capacity Factor % 80% [8] Capacity Factor Wind [9] Capacity Factor Backup [10] Operating Hours hours 7008 [11] Capital Recovery Required $/kwh [12] Fixed O&M Recovery Required $/kwh [13] Heat Rate BTU/kWh 7493 [14] Fuel Cost $/MMBTU 4.33 [15] Fraction Backup % [16] Fuel Cost per kwh $/kwh [17] Levelized Cost of Electricity $/kwh [18] Transmission and Distribution $/kwh 0.02 [19] LCOE with T&D $/kwh [20] Markup Over New Pulverized Coal 1.06 For CCS [21] Amount Fossil Fuel EJ/KWh 8E-12 [22] Carbon Content mmtc/ej [23] Carbon Emissions mmtc/kwh [24] Carbon Dioxide Emissions tco2/kwh [25] CO2 Emissions after 90% Capture tco2/kwh 4E-05 [26] Cost of CO2 T&S per ton $/tco2 10 [27] CO2 Transportation &Storage Cost $/KWh LCOE NGCC with CCS L K Fuel LTD KTD CO2 T&D LCOE Cost Shares NGCC with CCS L K fuel LTD KTD CO2 T&D LCOE Divide each input by LCOE 15

16 Renewables & Intermittency Intermittency is represented as imperfect substitute for low penetration levels of renewables: Wind, solar Elasticity of substitution increases cost as generation share increases For higher levels of penetration, there is a backup requirement that makes large- scale renewables perfect substitutes: Wind with Gas backup and Wind with Biomass backup More expensive due to additional cost of backup and long transmission This allows for LCOE comparisons 16

17 Renewables & Intermittency We currently require 1- for- 1 backup capacity with a low capacity factor to heuristically capture the fact that there are periods of the year when wind is likely not available Gunturu and Schlosser (2015) demonstrate this, showing 100 illustrative hours of wind power for major U.S. Independent System Operators (ISOs). In each there are significant periods of time when little power is produced anywhere within the ISO (the thick red line). Work linking with detailed hourly electricity model (next session) will help inform the assumption about backup requirements (Source: Gunturu and Schlosser, 2015; see research/publications/2894) 17

18 Key Processes Affecting Costs of Technologies in EPPA Total Factor Productivity (TFP): Economy- wide productivity improvement for capital and labor Based on GDP growth projections informed by IMF, World Bank, UN, and other sources Energy Productivity Improvement: Also called AEEI (Autonomous Energy Efficiency Improvement) Exogenous increase in energy efficiency over time Based on econometric literature 1% per year for non- electricity energy 0.3% per year for electricity 18

19 Key Processes Affecting Costs of Technologies in EPPA Price- Induced Changes: Endogenous changes in prices of input factors driven by supply/demand, policy (e.g. price on carbon) Over time competitiveness of technologies is affected by changing prices of fuel, capital, labor and other inputs Technology Specific Factor (TSF): Factor limiting initial expansion of new technology Market penetration function captures learning, monopoly rents and adjustment costs Dynamics based on nuclear in U.S. in 1970s- 80s 19

20 How Does a New Technology Penetrate the Market: Technology Specific Factor (TSF) Limited capacity to expand production à economy endowed with an initial amount of TSF, latent until there is demand Creates rents on the TSF (e.g. inventors / patent- holders with hot products get rich) Results in real adjustment costs (e.g. skilled labor is costly, as is substituting for more unskilled labor) Capability to expand (i.e. TSF) grows with actual expansion of the industry Classic investment problem Expansion is partly an investment in the capability to expand. Capability to expand both accumulates and depreciates. Higher demand è expand faster, but at increased cost. As TSF expands, price falls as rents and real costs fall Patents expire, workers are trained, capacity to expand is well- matched to demand growth and depreciation of existing capacity When TSF expands enough, becomes non- binding and production cost approaches long run cost ( n th plant ) 20

21 Adding TSF to CES Formulate TSF as input into CES function, specify input share, and endow initial amount by technology and region If Leontief between TSF and other inputs, amount of TSF exactly prescribes level of output. Greater demand = higher rent on TSF If can substitute other goods for TSF, can expand output beyond otherwise prescribed by TSF, but at added real cost, using more of other inputsà adjustment costs (e.g. hiring less skilled workers) 21

22 Example Diagram Electricity Output σ TSF Technology- Specific Resource Transmission & Distribution Generation & Sequestration σ TD σ PT Capital Labor Carbon Permits Fuel (COAL or GAS) Generation σ GVA Sequestration σ SVA Capital Labor Capital Labor 22

23 TSF Formulation TSF t+1 > TSF t * (1- δ TSF ) + INVTSF t+1 or inish TSF TSF= Stock of Capacity to expand INVTSF= Added capacity in period t+1 Stock depreciates at rater of δ TSF inish TSF = Initial endowment of TSF Why is TSF the greater of the stock or the initial endowment? INVTSF t+1 = θ TSF {β 1 [OUT t - (OUT t- 1 (1- δ O )] +β 2 [OUT t2 - (OUT t- 1 (1- δ O )) 2 ]} Relationship between Output in previous periods, our share elasticity and estimated β s and δ that produces the new investment in TSF 23

24 We estimated β s from nuclear power expansion in U.S. in 1970 s- 80 s β 1 = , β 2 = *10-7 ; R 2 = Nearly linear as squared term is very small Predicted and Actual Output of Nuclear Generation (million kwh) Data Regression 24

25 Example TSF Evolutions Cost Cost of 1 st plant, including initial TSF Cost of n th plant Time 25

26 The Role of Technologies: Example Model Results 26

27 COP21 We interpreted COP21 pledges and estimate where they take us if no further action The world remains largely fossil fuel dominated: ~75% (but down from ~83% w/o the Paris agreement) EJ Global Primary Energy Renewables Hydro Nuclear Gas Biofuels Renewables (8x) and nuclear (3x) expand several fold but not enough to drive out fossil fuels Oil Coal 27

28 No surprise: This path is not consistent with stabilizing at 2 C

29 To meet 2 o C Goal, how fast must emissions turn down after 2025? Global0CO 2 emissions,0 millions0 of0tons reference 2CL 2C 2CH Three emissions paths for high, median, and low climate sensitivity how certain do we want to be about avoiding 2 C? Global0CO 2 equivalent0emissions,0 millions0 of0 tons reference 2CL 2C 2CH What needs to be done in the near term depends on what is possible in the longer term

30 Implications for Energy Use and How It is Supplied Depends on Technology Advances We simulate different possible scenarios using IEA estimates of technology costs, and ranges (for median climate sensitivity). All+technolgies+at+base+costs Nuclear Dominates With central technology cost estimates from IEA, nuclear power dominates and biofuels gradually displace oil and gas. Coal disappears rapidly. coal+(ej) oil+(ej) gas+(ej) bioenergy+(ej) nuclear+(ej) hydro+(ej) renewables+(wind&solar)+(ej)

31 Implications for Energy Use and How It is Supplied Depends on Technology Advances Bioenergy Dominates With central IEA estimates for all technologies, but with high costs/constraints for nuclear, bioenergy is used for both fuel in vehicles and for electricity generation. Natural gas remains in the mix for power generation with CCS. coal/(ej) oil/(ej) gas/(ej) bioenergy/(ej) nuclear/(ej) hydro/(ej) renewables/(wind&solar)/(ej)

32 Implications for Energy Use and How It is Supplied Depends on Technology Advances coal/(ej) oil/(ej) gas/(ej) bioenergy/(ej) nuclear/(ej) hydro/(ej) renewables/(wind&solar)/(ej) Renewables Dominate With central estimates from IEA for bioenergy and CCS, nuclear constrained and low costs for wind and solar, renewables dominate electricity, while bioenergy is used for liquid fuels and electricity. Again some gas remains in the power mix (some w/ccs).

33 Implications for Energy Use and How It is Supplied Depends on Technology Advances Advantage for CCS With central estimates from IEA for renewables and bioenergy, nuclear constrained, and low CCS costs, CCS plays a larger role in the power sector with natural gas, but bioenergy still dominates electricity coal_no0ccs0(twh) oil0(twh) gas_ccs0(twh) coal_ccs0(twh) gas_no0ccs0(twh) nuclear0(twh) hydro0(twh) bioelectricity0(twh) renewables0(wind&solar)0(twh) coal/(ej) oil/(ej) gas/(ej) bioenergy/(ej) nuclear/(ej) hydro/(ej) renewables/(wind&solar)/(ej) The challenge for CCS in the power sector with fossil fuels is that we assume the base capture rate is 90%. The remaining emissions are a problem in stabilization. We have not added CCS to biomass power in these simulations, which could have a big impact

34 BioCCS A negative emissions technology: Adding CCS to biomass- generated electricity could lead to a technology with negative emissions, with growing biomass crops scrubbing CO2 from the atmosphere, which is then stored instead of released. 34

35 BioCCS under a 2 o C Policy 35

36 Ongoing Research Making markup endogenous such that the cost of a technology is compared to the average electricity price in a given year, instead of coal in the base year Region- specific markups Technology- specific learning that decreases the markup over time? Cost Cost of 1 st plant, including initial TSF Cost of n th plant Time How much backup to require for renewables? Other technology analogues on which to base TSF parameterization Nuclear in France, solar in Germany, hybrid vehicles in the US, Gas turbines in US, coal in China, Wind in China and US CCS costs and storage potential... 36

37 Questions? 37