IntERACT - An Integrated Energy and Economic Model

1. IntERACT
- An Integrated Energy and Economic Model
Mr.Asbjørn Hegelund,Advisor,DanishEnergyAgency,azh@ens.dk
18 June 2019ETSAP Workshop Summer 2019 Paris 1

2. Motivation
18 June 2019ETSAP Workshop Summer 2019 Paris 2
Economists:
”Uniform CO2-price across sectors and countries!”
Engineers:
”Design the optimal system!”
Academic research:
”We provide insights…”
Policymakers:
”We want to ban this
technology by year 2035,
what is the exact impact?”
GAPGAP !

3. Model concept
18 June 2019 3
General Equilibrium
Feedback
Technological
Explicitness
Behavioural
Realism
TIMES-DK
CGE
TIMES-DK
Energy
System
Model
General
Equilibrium
Model
Change in demand for
energy services
Price of energy services
Energy subsidies and taxes
Change in capital intensity
ETSAP Workshop Summer 2019 Paris

4. What’s included?
18 June 2019 4
TIMES-DK
Energy
System
Model
General
Equilibrium
Model
Change in demand for
energy services
Price of energy services
Energy subsidies and taxes
Change in capital intensity
ETSAP Workshop Summer 2019 Paris
CGE model
• 18 economic sectors
• One household
• Government
• Foreign trade
Soft-link
• 10 Economic sectors
• Power and district heating sector
• Residential sector
TIMES-DK
• Optimizes Danish energy
system towards 2050
• 10 Economic sectors
• Power and district heat sector
• Residential sector
• Transport sector
• Electricity exchange with
neighbouring countries
• 32 time slices
Andersen, Kristoffer S. et al. Energy, 2019, 169: 277-293.

5. Application of IntERACT
18 June 2019ETSAP Workshop Summer 2019 Paris 5
• Danish Energy Outlook
• Frozen policy scenario
• Analysis Assumptions for Energinet (TSO)
• Best estimate for future energy system
• Energy agreement 2021-2030
• Assessment of policy changes

6. Controlling the model
18 June 2019ETSAP Workshop Summer 2019 Paris 6
Linear modelling  Winner takes all!
Different approaches:
• Growth limitations
• Share constraints
• Technical limitations (e.g. direct
firing for industrial processes)
• Distributed technologies
Variations over price, efficiency etc.
• Hurdle rate for energy efficiency
0%
5%
10%
15%
20%
25%
30%
35%
40%
2015 2020 2025 2030 2035 2040
Shareoffuelinenergyservice
Illustration of share and fuel growth constraints
Upper share Lower share
Upper fuel growth in given year Lower fuel growth in given year

7. Distributed technologies
18 June 2019ETSAP Workshop Summer 2019 Paris 7

8. Modelling energy efficiency policies
18 June 2019ETSAP Workshop Summer 2019 Paris 8
• Households largely fail to adopt energy efficiency
investments that are cost-effective under market
conditions!
• Hurdle rate to cover many different risks/barriers, to
catch real-world behavior.
• So what happens if we change the substitution
parameter in the CGE model?
Example 1

9. What is the effect of the link?
18 June 2019ETSAP Workshop Summer 2019 Paris 9
0
5
10
15
20
25
30
High temp. Heat
Service
Medium temp. Heat
Service
Room Heat Electrical Motors Fork Lifts Services Lighting and IT
2012-€/GJ
Baseline CCS Policy
Effect on energy service prices by 2035
Policymakers:
”Cement production must use
CCS to limit CO2 emissions!”
Example 2

10. Economy effect of CCS policy
18 June 2019ETSAP Workshop Summer 2019 Paris 10
• The coal CCS policy reduces domestic production
from the cement sector by €357 million in 2035,
whereas net import increases by €316 million.
• This suggest a carbon leakage of around 88
percent. It may be higher or lower depending on the
CO2 emission associated with foreign concrete
production.
• So now the policymaker can make an informed
decision.
-10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10%
Wholesale and retail
Water and air transport
Trains, buses and taxis
Public services industries
Private service industries
Other utilities
Other commodity production
Motor vehicles - purchase and repair
Metals, machinery and transport equipment
Gas manufacturing and distribution
Food
Extraction of oil and gas
Electricity and district heating
Construction
Chemical
Concrete
Agriculture
Relative change in sectoral activity relative to baseline across the 20
sectors in the CGE model
Policymakers:
”Thank you IntERACT!”
Example 2

11. Thank you for your attention
Learn more:
https://ens.dk/en/our-services/projections-and-models/models/documentation-interact
18 June 2019ETSAP Workshop Summer 2019 Paris 11