Electricity in the GTAP model
Tony WiskichNational CGE Workshop 2013
Background• Australian Treasury is interested in electricity
modelling in an economy-wide framework • It has used:
– detailed consultant’s electricity model and– embedded Constant Elasticity of Substitution (CET)
production nest between generation technologies.
• Interested in macroeconomic impacts of adjustment in electricity generation
Motivation• NOT to replace detailed bottom-up electricity
model• Provide some insight using an alternative
approach to a CET nest structure based on a competitive electricity market
• Provide some insight into costs of adjustment
Model basics• GTAP model made recursive through simple
capital/investment dynamic• Single region, 8 sectors including electricity
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Real GDP impact of a 1% decrease in Labour, Land & Nat Res efficiency
Temporary
Permanent
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Real GDP impact of a 1% decrease in Capital stock
Electricity Structure Assumptions
• Profit + Fixed + Variable Costs• Profit = Capital Cost (28%)• Fixed = Labour Cost (13%)• Variable = Intermediate (59%) (+ TAX)• Generators operate in a competitive electricity
market similar to Australia
Base case assumptions• Baseload, Mid and Peak generation• Same rate of return on investment between
generation types & other sectors• Same Fixed Cost per MW (MegaWatt) Capacity• Same Variable costs structure• Small load shedding period (demand > supply)
– Approx 3 hours per year
M
2M
1Duration
Load Load duration curve
1
Capacity
Base
Mid
Peak
Duration
1
Capacity
BaseMidPeakDuration
1 Time
Price =Marginal Cost
BaseMidPeak
P_Base
P_Mid
P_Peak
Price CAP
1 Time
Price =Marginal Cost
BaseMidPeak
Base Capital + Fixed (Labour) Costs
Base Variable (Intermediate) Costs
P_Base
P_Mid
P_Peak
Price CAP
Base case assumptions/numbers
Var Cost
Electricity Gen share
Capacity share
Utilisation rate
Rev Share
Marginal generator
time share
Cost to build
per MW
Baseload 1 84.9% 66% 96% 79.3% 33% 1
Mid 1.5 15% 31% 36% 20% 62% 0.33
Peak 2 0.1% 3% 3% 0.7% 5% 0.28
Policy shock
• Introduce electricity output tax on Baseload electricity generation
• Two rates, initial Baseload variable cost = 1– Fast: incremental tax increase of 0.05 per year
• Mobile capital (consider immobile later)
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Baseload generation % change
CES (elas=10)ELY
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Mid,Peak generation % change
Mid&Peak CESMid ELYPeak ELY
Back-of-envelope – ΔPrice• CES: Elasticity 10, approx 80% Base share• Price inc ~ 0.2*((1+0.8/0.2)10/9-1)-0.8 ~ 20%• ELY: Price inc ~ Base_varshare_as_marg_gen*
(Mid_varprice/Base_varprice-1)~14% * 0.5 ~ 7%
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Electricity price % change
CES (elas=10)ELY
Back-of-envelope - ΔGDP• CES: GDP impact ~
price_inc*ely_cost/GDP*dynamic_adj_factor ~ 20%* 2/56 * 1.5 ~ 1.1%• ELY: Price inc: (extra_var_cost –
cap_savings)/GDP*dynamic_adj_factor ~ (0.9*0.5 – 0.5*2/3)/GDP*dyn ~ 0.12/56*1.5 ~
0.3%
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Real GDP % change
CES (elas=10)ELY
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GDP cost per Baseload unit reduction
CES (elas=10) ELY
tax
Fixed capital in generation• Baseload Depreciation – 30 years to vanish• No limit on capital increase (build in single
period)• Capital is decommissioned if profits < 0
Slow tax introduction• From 0.05 to 0.02 increment per year
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Baseload: Fixed capital, Fast vs Slow tax introduction
fast Profit/MW
fast MW
fast GEN
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Fast vs Slow: Baseload MW, Profit/MW , Gen % change
slow profit/MWslow MWslow GENfast Profit/MWfast MWfast GEN
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GDP Cost: ELY slow vs fast tax
fast tax
slow tax
fast cost
slow cost
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GDP cost vs Baseload reduction
Fast CET
Slow CET
% reduction in Baseload Generation
% re
ducti
on in
Rea
l GDP
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GDP cost vs Baseload reduction
Fast CET
Slow CET
Fast MOBILECAP
Slow MOBILECAP
% reduction in Baseload Generation
% re
ducti
on in
Rea
l GDP
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GDP cost vs Baseload reduction
Fast CET
Slow CET
Fast MOBILECAP
Slow MOBILECAP
Fast FIXCAP
Slow FIXCAP
% reduction in Baseload Generation
% re
ducti
on in
Rea
l GDP
Summing up• Competitive electricity market model can be
done and has different dynamics/costs to CET• Baseload-Mid substitution not Peak• Fixing capital: Adjustment cost depends on speed
of tax introduction– Inefficient capital allocation, merit order switching– Capital decommissioning
Possible further work• Simple international analysis
– based on projected capital/fixed/variable costs– Compare economic costs with CET
• Figure out way of adjusting CET implementation to approximate detailed model
• Intermittent generation
Extra slides
Tony Wiskich2013 conference
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GDP Cost: CES slow vs fast tax
fast CES
slow CES
fast tax
slow tax
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GDP Cost: CES slow vs fast tax
fast CES
slow CES
fast ELY
slow ELY
fast tax
slow tax