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Electricity in the GTAP model Tony Wiskich National CGE Workshop 2013

Electricity in the GTAP model Tony Wiskich National 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

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Electricity in the GTAP model Tony Wiskich National CGE Workshop 2013

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  1. Electricity in the GTAP modelTony WiskichNational CGE Workshop 2013

  2. 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

  3. 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

  4. Model basics • GTAP model made recursive through simple capital/investment dynamic • Single region, 8 sectors including electricity

  5. 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

  6. 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

  7. Load duration curve Load 2M M Duration 1

  8. Capacity Peak Mid Base Duration 1

  9. Capacity Peak Mid Base Duration 1

  10. Price = Marginal Cost Price CAP P_Peak P_Mid P_Base Peak Mid Base Time 1

  11. Price = Marginal Cost Price CAP P_Peak P_Mid Base Capital + Fixed (Labour) Costs P_Base Base Variable (Intermediate) Costs Peak Mid Base Time 1

  12. Base case assumptions/numbers

  13. 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)

  14. 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%

  15. 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%

  16. 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

  17. 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

  18. 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

  19. Extra slidesTony Wiskich2013 conference

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