The wider socio-economic considerations on changes in the energy system

Prof. Mikael Skou Andersen

NERI, Dept. of Policy Analysis,

University of Aarhus (DK)

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Overview

• Politics and economics of energy supply• Ranking of renewable energy in a CBA-

perspective• Some EVA results and implications for

biomass• Bottom-up versus top-down approaches• Vision: linking of energy systems model

with macro-economic perspective

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The economics of energy supply

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The politics of energy supply

• Besides oil price other drivers of energy policy– supply stability– broader international security considerations– environmental aspects (modest role)

• Energy policy tightly regulated and subsidised– in EU a prerogative of the member states– large-scale subsidies for nuclear energy– some liberalisation to promote efficiency– not primarily an economic issue

• Considerable vested interests in energy sector

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20-20-20: A new target in energy policy

• EU Council of Ministers, March 2007:– 20 per cent reduction of CO2– 20 per cent renewable energy– in 2020

• Denmark– negotiations on new energy policy stalled in

June 2006; have resumed now– EU requires 30 per cent renewables in DK in

2020, up from 15 per cent

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Energy Agency: Biomass more efficient than wind energy

1% renewables:

Million DKK in NPVdiscount rate 6%; oil 70 $/b

Prod.

Incl. CO2

Extern.

Costs

Market

price adder

Tax distort.

Total

Wind energy land

power

240 -30 40 90 340

Offshore wind

power

430 -30 70 130 610

Biomass (straw)

heat

90 >-10 20 70 170

Biomass (wood chips) heat

130 >-10 20 70 220

Solar heating 170 >-10 30 60 260

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EVA: External costs in DKK- high and low estimates

191

43

127

81

22

55

0

20

40

60

80

100

120

140

160

180

200

Middel-VOLY Median-VOLY

PM2,5

SO2

NOx

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EVA: Fuel mix and scrubber dependencyfor external cost per kWh

2628

26

15

8

3

33

26

47

0

5

10

15

20

25

30

35

40

45

50

FV_kul/gas AV_kul (deNOx) VF_affald

øre/kwh i eksterne omkostninger (uden CO2)

2003 2004 2005

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Amagerværket: a closer look

AV EVA (m_2000) EVA (m_2001) EVA (m_2002) EVAAverage

Ecosense

PM2.5-primary 35,78 46,83 41,38 41,33 34,83

SO4/SO2

SO2/SO2

SO2-total

9,512,00

11,51

10,572,45

13,02

10,292,07

12,36

12,30 11,84

NO3/NOx

O3/NOx

NOx-total

15,03-0,3814,65

18,13-0,3617,77

17,63-0,3317,30

16,58 12,93

PbHg

36,5111,62

42,3413,47

37,3311,89 38,73

12,33 -

Table 3. Amagerværket/CoalCHP: External costs of air pollution emissions in Euro per kilogramme (2004-prices) for three consecutive meteorological years.

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CBA of wind-energy(NPV with r=3%)

0,6

2,3

4,2

2,8

0,4

2,3

4,3

2,8

2,1

3,1

4,3

3,4

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

mio./MW

Havmøller A Havmøller B Land

50$

60$

70$

60$/300

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Bottom-up energy sector modelling vs.top-down macro-economic perspective

• Bottom-up modelling is appropriate from a technical point of view to capture detail of energy system

• In case of non-marginal changes in energy system a need to understand broader macro-economic implications and feed-back on the energy sector itself– e.g. impacts in agricultural and forestry sectors– second-order impacts on economic growth,

employment etc.

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Model availability for wider analysis of fossil-fuel phase-out

• RAMSES: Bottom-up model of Nordic energy sector of DK Energy Agency

• BALMOREL: Bottom-up model of Nordic-German energ sector

• EMMA: Energy-model as a satelitte model to ADAM; DK-macro-economic model

– general equilibrium model principles

• E3ME: Energy-Economy-Environment model of EU-27 including Denmark with high sector and fuel resolution

– econometric time-series estimated model

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THE END

www.DMU.dk

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