Based on a static computable general equilibrium model the research analysis macroeconomic and sectoral effetcs of cross-subsidies elimination in Ukrainian electricity sector.

1. Electricity subsidies CGE model for Ukraine Subsidies elimination scenario Modelling results Conclusion
Maksym Chepeliev
chepeliev@ief.org.ua
25/03/2014
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF
Distributional Effects of Electricity Subsidies
Elimination in Ukraine: A CGE Analysis
Institute for Economics and Forecasting, Ukrainian National Academy of Sciences
Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences

2. Outline
Cross subsidization in electricity sector
CGE model for Ukraine
Subsidies elimination scenario
Modelling results
Conclusion
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
5
4
3
2
1
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario

3. Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Cross subsidization scheme

4. Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Electricity consumption subsidies volumes
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
0
5
10
15
20
25
30
35
Основной Основной Основной Основной Основной Основной Основной Основной
%
bn.UAH
Business consumers
Households
% of GDP
% of Government Budget

5. Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Electricity consumption subsidies volumes
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
Основной
MW-h
%
Households electricity expenditure share
MW-hours of electricity that can be bought for an average salary

6. Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Subsidies volumes differentiation
100%
105%
110%
115%
120%
125%
130%
135%
140%
145%
8%
9%
10%
11%
12%
1 2 3 4 5 6 7 8 9 10
Decile number (1 - lowest)
Subsidies distribution by deciles (left axis)
Per capita equivalent cash subsidies differentiation (2nd decile - 100%)

7. Outline
Cross subsidization in electricity sector
CGE model for Ukraine
Subsidies elimination scenario
Modelling results
Conclusion
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
5
4
3
2
1
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario

8. CGE model for Ukraine: key features
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Is a top-down model.
Static.
Is based on the Input-Output table for Ukraine and additional
information on transfers between economic agents.
Is calibrated to a base year (2011).
Incorporates heterogeneous households differentiated by income
level (10 groups).
Production and consumption is modeled via Constant elasticity of
substitution functions (CES).
Model has extended (multi nested) energy production block.
Producers are aggregated into 30 economic activities.

9. CGE model for Ukraine: circular flow
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Goods and
Services
Import Export
Households
(max utility)
Entrepreneurs
(max profit)
Government
Production
factors
Supply of
goods and
services
Purchase of
production
factors
Supply of production
factors
Purchase of
goods and
services
Income from
production factors
transfers
subsidiestaxes
taxes
Equilibrium conditions:
1. Zero profit: no producer earns an “access” profit
2. Market clearance: supply ≥ demand for each commodity.
3. Income balance: expenditure ≤ income.

10. Production block structure and simulation procedure
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Input data (SAM,
substitution elasticities, labor market etc.)
Model calibration
(replication of base year)
Policy assumptions and scenario)
(exogenous variables change)
New equilibrium solution
Comparison and policy conclusions

11. Outline
Cross subsidization in electricity sector
CGE model for Ukraine
Subsidies elimination scenario
Modelling results
Conclusion
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
5
4
3
2
1
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario

12. Subsidies elimination scenario
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Elimination
component
Compensation
component
 30% reduction;
 50% reduction;
 full elimination.
 via production taxes rise;
 via budget transfers;
 via partial preservation of
cross subsidization;
 via progressive taxation

13. Outline
Cross subsidization in electricity sector
CGE model for Ukraine
Subsidies elimination scenario
Modelling results
Conclusion
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
5
4
3
2
1
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario

14. Modelling results
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine Modelling results ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario
Основной
Основной
-Основной
Основной
Основной
Основной
-Основной
Основной
Основной
Основной
-Основной
Основной
-Основной -Основной Основной Основной Основной
Government expenditures
Capital formation
Households income
Output
Change, % (in a base year prices)
S1 (30% subsidies elimination - HHs price
increase to 49,7 kop per KW-h)
S1+compensation
S2 (50% elimination - price rise to 66,8
kop)
S2+compensation
S3 (full elimination - price rise to 1,1 UAH)
S3+compensation

15. Conclusion and further work
Marc Vielle Methodologies linking energy systems models and economic models
Coupling a Computable General Equilibrium Model with a Bottom-Up model: Lessons from GEMINI-E3 experiments 2/18
CGE model for Ukraine ConclusionCross subsidization in electricity sector
Maksym Chepeliev Shevchenkivska vesna 2014: Economics
IEF Institute for Economics and Forecasting,
Ukrainian National Academy of Sciences
Subsidies elimination scenario Modelling results