Modelling the Energy Sector in a Computable General Equilibrium Framework: A new approach to integrated bottom-up and top-down modelling

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How can society safeguard energy supply if most of it has to come from intermittent sources such aswind and solar energy? How large are the social cost of integrating a much higher share of intermittentrenewable energy in the system likely to be? In this thesis we take a first step at increasing theknowledge base for answering these questions. We model the electricity and district heating sector,using plant-level information from detailed bottom-up models of the energy system. The modelframework is developed to allow for a direct integration into a large-scale CGE model in order toasses economy-wide policy implications of a green transition in a general equilibrium framework. Weshow that our modelling approach, in the limit, nests the traditional linear programming approachconventionally applied in bottom-up models. To realistically capture trade flows for electricity, wedevelop a new trade mechanism, emulating trade on the day-ahead power market by using plantdata on neighbouring countries and information on transmission lines’ capacities. The formulationendogenously determines prices, production, and consumption for both domestic and neighbouringpartners in trade. Further, by modelling energy production at the hourly basis the bottom-up modelis able to account for intermittency in a general equilibrium framework.The bottom-up model is calibrated to Danish data for 2017. We carry out four simulation exper-iments of policies that are expected to be key elements in a green transition to a fossil-free society.We show that increasing the share of renewable, intermittent energy production in Denmark from50% to 75% lowers domestic GHG emissions from the electricity and district heating sector by morethan 20%. Moreover, while the price on electricity decreases by 22.5%, the producer price for thetechnologies based on intermittent energy drops by 34%, thereby lowering the economic value of thesetechnologies significantly compared to other technologies. It is also shown that both increased flexi-bility of short run demand for energy services, energy storage, and trade with electricity all mitigatethe effects of intermittency. Although the results are preliminary and should be interpreted withcaution, we generally find that trade is the primary instrument for mitigating intermittency in theshort run.
Original languageEnglish
Publication date2019
Number of pages180
Publication statusUnpublished - 2019

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