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