The National Energy Modeling System (1992) / Chapter Skim
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3. NEMS Architecture
3. NEMS Architecture
Pages 45-88
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From page 45... ...
may also be important, for example, when modeling our vulnerability to energy supply disruptions. This report will not consider in greater depth modeling for the short-term time horizons.
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From page 46... ...
Individual modules would include energy supply and demand models and an intenndustry economic growth model brought together in one 'integrating system," and auxiliary models that would generally use outputs Tom the integrating system once its solution were found. Figure 3-1 provides a simple illustration of the proposed NEMS architecture.
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From page 47... ...
These values for energy demand would then be passed to the supply and conversion models, which would In turn provide prices and investments as outputs, which would likely not be consistent with the assumed initial set. The control module would include an algorithm to successively adjust the trajectory of prices and investments to converge toward an equilibrium.
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From page 48... ...
Once an equilibrium solution is found for the integrating system, then outputs from each of its modules could be used in the three auxiliary models, those examining the economic, environmental, and energy security impacts of the given equilibrium. The rationale and for more detail about this proposed NEMS architecture are n~f~vir1~.A MODUI^R ARCHITECTURE The proposed NEMS system is described as modular.
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From page 49... ...
Similarly, modularity would allow NEMS to integrate results from external models whenever this were desirable. The committee below recommends that NEMS be developed to mn on personal computers if the resulting configuration would not significantly sacrifice the NEMS models'
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From page 50... ...
ElA must take responsibility for maintaining high quality, even for modules developed outside of ELF and for making sure that EIA personnel fully understand them. INTEGRATING MODEL OPERATION The integrating system would take a set of ~nputs -- for example, world oil price, U.S.
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From page 51... ...
The demand module response is represented by the downward sloping curve, which projects the energy quantity demanded at each energy price. The supply module response is represented by the upward sloping curve, which projects energy supply price for each energy quantity supplied.
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From page 52... ...
In addition, policy analysis is hampered when multiple equilibria exist. Uniess each equilibrium point is examined, the projected impacts of policy measures can be extremely misleading.
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From page 53... ...
NEAtSA~r 53 VARIABLE 2 FIGI IRE 3-3 Illustration of multiple equilibria.
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From page 54... ...
For this reason, the committee recommends that NEMS be developed to run on widely available computers unless the resulting configuration would significantly sacrifice the NEMS models' content. 1 For use within EIA, the entire NEMS should perhaps be available on a central file server networked with individual personal computers or workstations.
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From page 55... ...
. ~ ~ ~ , ~ provide as outputs the quantizes of the various energy forms demanded for the moot delivered prices of energy.
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From page 56... ...
The main concept behind current modules of energy supply is cost minimization, the obtaining of a given supply of a particular energy form at minimal cost. Analyzing and forecasting such activities often involves optimization models.
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From page 57... ...
Overcoming these inherent problems In current longterm oil and gas supply modeling will require a two-part effort. First, the oil and gas resource base and supply models need to include the very large volumes of unconventional oil and gas that exist in low per~xleabili~ formations, fractured reservoirs, coal seams aIld heavy oil and tar sand deposits.
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From page 58... ...
Detailed analyses of coal issues should probably be conducted outside the NEMS. Energy Conversion Modules The electricity generation model would be a hybrid of demand and supply models, taking as inputs the prices of possible fuels and the quantity of electricity demand (Qe)
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From page 59... ...
~.# Renewable Energy Conversion Modules Data requirements and acceptable mode} structures for renewable energy are different Tom those for fossil energy. For purposes of this discussion on how DOE models treat renewables, renewables are divided into two categories: biomass energy, for which ongoing fuel expenses are a significant fraction of total costs; and nonbiomass renewables like ~ _ .
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From page 60... ...
Economies of scale could be misrepresented as increasing unit equipment size instead of increasing equipment production rate: cost reduction does not take place in the laboratory, but in the factory and the field. At the same time, such simulations would tend to overstate renewables' long-term contribution to energy supply because of inadequate representation of daily and armual cycles of energy production, low energy-density in the marginal resource base, and overly optimistic projections about R&D results.
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From page 61... ...
For this reason, ElA should develop smaller, suppler modules (but modules larger than reducedfonn versions) that simulate the operations of the more complex renewable energy conversion modules.
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From page 62... ...
energy imports (oil, natural gas, methanol and electricity) would resemble other supply models, with world energy prices as outputs and U.S.
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From page 63... ...
The intenndustry economic growth mode} should incorporate the idea that economic activities both influence and are influenced by energy sector outcomes. For example, energy demand in the industrial sector varies significantly with the balance between heavy and light industry.
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From page 64... ...
An interindustry growth model such as the Jorgensen-Wilcoxen model would already have a full structure for determining energy demand. It is not clear that a full structure of econometrically estimated demand equations could be reconciled with bottom-up models of industrial energy use.
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From page 65... ...
These models have been developed to be consistent with histoncaBy observed behavior. ElA energy demand models vary In their reliance on top-down estimates of observed energy consumption and bottom-up calculations of consumption.
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From page 66... ...
According to flow-adjustment models, consumers form expectations concerning future prices and incomes, and based on these expectations and other exogenous (external) variables, they choose desired or preferred levels of energy consumption.
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From page 67... ...
The second issue is Epically approached through the partial adjustment model, in which current energy consumption depends on past energy consumption and other exogenous variables. As for the first, desired energy consumption can plausibly be argued to depend on expected real energy prices and expected real income (or economic output)
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From page 68... ...
For example, a fundamental concept In bottom-up demand analysis is "energy service," a particular "good" in which energy consumption plays an important role. If the passenger transportation energy service is assumed to be mobility, then passenger-m~les for different transportation modes constitute the activity and energy demand is the sum of energy demands for each mode.
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From page 69... ...
The supply curve describes the rate of energy consumption as it depends on the level of investment ~ space-heating efficiency equipment. The level of investment can be related In turn to energy prices and dec~sion-making behavior.
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From page 70... ...
Industrial sector energy demand is greatly affected by the level of regional economic activity. Although the ratio of energy use to gross national product is important, it is not fixed, and it is now widely known that this important ratio vanes with changes in real energy prices and other factors.
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From page 71... ...
Considerable effort would be needed to bring these data into useful form, however. Energy consumption data for nonmanufacturing areas (agriculture, mining, and construction)
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From page 72... ...
The ElA's Residential Energy Consumption Survey (RECS) data series Consumption Patterns of the Household Vehicles is even more limited in its usefulness to the modeler, now that it no longer provides a reliable estimate of in-use vehicle fuel economy.
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From page 73... ...
Specific policies include investment tax credits and regulatory mechanisms to reward utilities for Investing on the consumer's side of the meter. The way such policies work is complex For instance, detailed field studies show that the elects of the energy conservation tax credit in the early 19SOs were much more limited than might be assumed in a Apical model of investment decision malting ~ ~- Similarly, utility demand-side programs need to be understood through research before such policies can be adequately modeled.
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From page 74... ...
For example, a reduce`~-form energy consumption module for a sector In a given region might include a base-case projection of energy consumption along with a constant elasticize (own-elasticitr and cross-elasticity) approximation for the impacts of energy prices on consumption of different energy forms over time.
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From page 75... ...
Short run economic analysis, most likely outside of the NEMS, must be performed to examine the linkage between world oil price changes during disruptions and changes In the prices of the venous energy forms. Short run macroeconomic analysis, also probably outside of NEMS, must be conducted to examine the linakages between energy price changes and economic consequences.
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From page 76... ...
This analysis would still allow interested individuals and organizations some insight into the environmental consequences of energy system changes (Edmonds, 1991; Edmonds and Bames, 1990; Hogan and Jorgenson, 1991; Manne et al., 1990~. The approach envisioned would begin by characterizing the direct air emissions of primary pollutants for major energy supply, transport, conversion, and end-use activities.
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From page 77... ...
E~enence In this area may then pronde ETA with sufficient expertise to move to the more complete analysis outlined above. Report Writers The GEMS system should include well-designed graphics and report writers to pronde routine graphical arid numerical outputs of the types normally found to be helpful for analytical purposes.
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From page 78... ...
Finally, IFFS calculations currently clears markets one year at a time, thereby precluding any representation of rational expectations or other 'look-ahead" behavior. The Fossil2 model of the Office of Polipy, Planning and Analysis, which was used as the integrating framework for the first NES' is constructed using a different strategy.
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From page 79... ...
Market Disequilibrium NEMS architecture should be based on the idea that energy markets wall clear: energy prices will take values such that supply is equal to demand for each energy form (Weyant, 1985~. One question is the tune it takes markets to clear, given whatever regulatory or other rules exist.
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From page 80... ...
For example, when there are government imposed price controls on gasoline, the length of the gasoline lines could be elected to adjust to clear markets. ~ an aggregate model, such adjustments In waiting times could be seen as shifts in the demand fimctions for gasoline.
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From page 81... ...
The essence of contingent strategies is that policy rules themselves may depend on features of the energy system. For example, if energy prices go above a particular point, then energy conservation rules may be imposed.
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From page 82... ...
Decision makers are also assigned to look to the future -- to their expectations -- rather than just to the past -- their experiences -- when malting decisions. Assuming rational expectations, if the model is deterministic, then individuals forecast paces correctly; if the model is probabilistic, then individuals forecast prices using the same probability distribution about future prices that results from the model.
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From page 83... ...
If people systematically underestimated future energy prices and therefore systematically bought more energy-intensive capital equipment than they would otherwise, this belief, if identified, might lead to a policy of advertising that energy prices are likely to increase. In a world of myopic expectations, such a strategy alight significantly change behavior.
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From page 84... ...
While In principle rational expectations equilibria could be found in this way for a probabilistic model, in practice the process would be so time-consum~ng as to be entirely unpractical unless better algorithms are developed and computer speeds increased above those currently available. Thus, the HEMS wall not be used routinely to examine probabilistic rational expectations equilibria, even though rational expectations concepts are logically most consistent only in a stochastic environment.
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From page 85... ...
The maximum total emission remains at QMa,C- The modules projecting emissions would then read the price PO and provide an emission estimate of QO. The mtegrat~g system would be at a solution if QO were close enough to QMa]
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From page 86... ...
While modules are being constructed, ELA should give attention to building in to the modules explicit representation of factors that might be modified by specific policy actions. Examples of policy actions that the committee believes to be important include those associated with taxes, environmental constraints, conservation incentives and regulations, and new technology development.
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From page 87... ...
However, several new models should be developed or acquired from external sources: beyond the ~ntenndust~y economic growth model, these should include an environmental impacts mode! and a renewable energy supply and conversion model.
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From page 88... ...
Model users should be able to include alternative assumptions about the formation of expectations, including those defined theoretically as myopic, adaptive, and rational expectations. O The NEMS should pronde carefully envisioned graphics and report writers to provide routine graphical and numencal outputs of the types normally found helpful for analytical purposes.
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