Energy Sector Economics

8/3/2019 Energy Sector Economics

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AssessingAssessing thethe Latvia Energy Sector inLatvia Energy Sector in

the Context of Climate Changethe Context of Climate ChangeEconomicsEconomics

World Bank Prototype Carbon Fund Workshop

Riga, LatviaJanuary 24-27, 2000

Gary A. Goldstein, Lorna A. Greening

International Resources Group, Ltd.

Janis RekisLatvian Development Agency, Department of Energy

LAA/DoE


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Presentation TopicsPresentation Topics

y Relevance of Latvia MARKAL

y Implications of Economic Growth on the

Energy System and Carbon Emissionsy Evaluating the Value of Latvia Carbon

Permits

y MARKAL Methodology Overview

y Conclusions

LDA


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Relevance of Latvia MARKALRelevance of Latvia MARKAL

y IFE-Norway Collaboration

y Preliminary Results Presented at IEA-ETSAP

y

MEPRD Report on SO2y Policies and Measures to Mitigate GHG

Emissions and Increase Sinks

y Second National Communication to the

UNFCCCy Energy Trading and CO2 Mitigation in the

Nordic and Baltic Countries

LDA


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Latvia MARKAL BaselineLatvia MARKAL Baseline

AssumptionsAssumptionsy GDP = Optimistic National Energy Program Scenario

(1997)

y Energy Prices for Imports from International Energy

Agency (Other than Electricity)

y Individual Power Plants Represented

y Technology Progress with Regard to EfficiencyImprovements

y No Limits on Fuel Imports

y No Nuclear Power

y Forestry and Non-CO2 GHG are Not Accounted ForLDA


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Latvia GDP ForecastsLatvia GDP Forecasts

438

1

392

5

255

7

217

7

219

1

217

3

224

6

243

9

252

6

0

2000

4000

6000

8000

10000

12000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2005

2010

2015

2020

2025

2030

2035

mill.US$

Forecast for MARKAL (1996) GDP at average prices

Ministry of Economy (Slow Development, 1999) Ministry of Economy (Optimistic Development, 1999)

Latvia National Energy Program (Base, 1997) Latvia Natioinal Energy Program (Optimistic, 1997)

A l l d a t a g iv e n i n a v e r a g e p r i ce s o f 1 9 9 3 a t e x c ha n g e r a t e 0 . 6 7 4 L S / U S $

LDA


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What are theWhat are the IImplications ofmplications of EEconomicconomic

GGrowth forrowth for CCarbonarbon EEmissions?missions?

y Expanded Trade with the EU will Result in GDP

Growth Rates Similar to the EU by 2005

y Industrial Structure will Shift to Light

Manufacturing and Commercial Services

y Carbon Emissions will Increase, but Economy

will be Less Carbon Intensive Over Time

LDA


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0

50

100

150

200

250

PJ

1994 1999 2004 2009 2014 2019 2024

Years

Energy Services According to GDP GrowthWorld Bank PCF Latvia Workshop

Base Case Mid Growth Low Growth

LDA


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LDA

Total CO2 EmissionsWorld Bank PCF Latvia Workshop

0

5000

10000

15000

20000

25000

30000

1994 1999 2004 2009 2014 2019 2024

Years

Th.TonsCO2

Base Case Base Case -5%CO2 Mid Growth Mid Growth -5%CO2

Low Growth Low Growth -5%CO2 92% level of 1990 MoE-Higher Growth


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Potential CO2 Permit RevenuePotential CO2 Permit Revenue

Cumulative CO2 Emissions Below Kyoto Level

(92% of 1990) for 2008-2012

24.9 66.35 Mtons CO2

Permit Price Range

$1.11 - $7.74/TonCO2 ($4.07 - $28.38/TonC)

Permit Revenue Range

$27.6 - $513.6 Million

LDA


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Liepajas Project Avoided EmissionsLiepajas Project Avoided Emissions

((Base Scenario)Base Scenario)

Displaces Some Natural Gas and Dual-fired Power

Generation

Avoided Emissions 2001- 2012 (TonsC)

Methane displaced 119.298

Power Sector Fuel Switching 16.965

TOTAL 136.263

LDA


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LDA

CO2Emissio

nsbyFuel

WorldBankPCFLatviaWorkshop

0

5000

10000

15000

20000

25000

Base Case

Base Case -

5%CO2

Base Case

Base Case -

5%CO2

Base Case

Base Case -

5%CO2

Base Case

Base Case -

5%CO2

Base Case

Base Case -

5%CO2

Base Case

Base Case -

5%CO2

Base Case

1994

1999

2004

2009

2014

2019

202

Th. Tons CO2


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LDA

Contribution to 10% CO2Reduction - Base Case

World Bank PCF Latvia Workshop

10000

12000

14000

16000

18000

20000

22000

1994 1999 2004 2009 2014 2019 2024

Years

Th

Tons

CO

2

EFF IMPROVEMENT

MOVE TO RENEW

MOVE TO NUCLEAR

LESS CO2/FOSSIL

REMAINING


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CO2 Intensity (CO2 vs GDP)World Bank PCF Latvia Workshop

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1994 1999 2004 2009 2014 2019 2024

Year

Th.

TonsCO2/

1995M

il.

US$

Base Case

Base Case -5%CO2

Mid Growth

Mid Growth -5%CO2Low Growth

Low Growth -5%CO2

LDA


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Total Energy System Cost vs Cumulative CO2

BASE - High GrowthWorld Bank PCF Latvia Workshop

510

520

530

540

550

560

570

31.74 31.74 31.74 31.75 31.75 31.75 31.75 31.75 31.76 31.76

Billion 1995 US$

M

illionT

ons

C

O

2

LDA


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CO2Permit Price Range


0

2

4

6

8

10

1994 1999 2004 2009 2014 2019 2024

Year

1995$/TonCO2

LDA


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1994 19992004 2009 2014 2019 2024

0

5

10

15

20

25

30

35

40

1994M$

Year

Annual Revenue from Permit Sales - Base Case


Lowest Permit Price

High Permit Price

1994 1999 2004

2009 2014 2019 2024

0

5

10

15

20

25

30

35

40

1995

M$

Year

Annual Revenue from Permit Sales - Base CaseWorld Bank PCF Latvia Workshop

Lowest Permit Price

High Permit Price

LDA


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LDA

Electricity Production - Deterministic vs Stochastic w/5% CO2ReductionWorld Bank PCF Latvia Workshop

10

15

20

25

30

35

40

1994 1999 2004 2009 2014 2019 2024

YEAR

PJ

BASE Det

Mid Growth Det

Low Growth Det

BASE Stoch

Mid Growth StochLow Growth Stoch


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The Forest Sector as a CarbonThe Forest Sector as a Carbon

SinkSink

Timber Harvesting is Increasing Relativelyto 1990

There is an Increase in PlantationProduction

Latvian Forests will Remain a Net Carbon

Sink During the Time Period 2000-2020

LDA


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MARKAL Building BlocksMARKAL Building Blocks

RESOURCES PROCESSES GENERATION ENERGY

SERVICES

IMPORT

ELECTRICITYREFINERIES END-USE

D

HEAT E

FUEL M

MINING PROCESSING A

N

STOCKS DEMISSIONS DEVICES S

CONTROLS

EXPORT


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What MARKAL DoesWhat MARKAL Does

y Identifies least-cost solutions for energy system planning

y Evaluates options within the context of the entire

energy/materials system by:

balancing all supply/demand requirements

ensuring proper process/operation

monitoring capital stock turnover

adhering to environmental & policy restrictions

y Selects technologies based on life-cycle costs ofcompeting alternatives


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What MARKAL Does (cont.)What MARKAL Does (cont.)

y Establishes baselines and the

implications of alternate futures

y Provides estimates of:

y energy/material prices

y demand activity

y

technology and fuel mixesy GHG and other emission levels

y mitigation and control costs


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MARKALMARKAL--MACRO OverviewMACRO Overview

ENERGY SOURCES

TECHNOLOGY CHARACTERISTICS

ENVIRONMENTAL CONSTRAINTS & LABOR GDP

POLICIES CONSUMPTION

USEFUL

ENERGY

SERVICES

MARKAL MACROENERGY

PAYMENTS

INVESTMENT

CAPITAL

TECHNOLOGY MIX

FUEL MIX

EMISSIONS SOURCES & LEVELS

FUEL & EMISSION MARGINAL COSTS

RANKING OF MITIGATION OPTIONS


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Input Form forResource Supply OptionInput Form forResource Supply OptionTe mplate 1a: Spreadshe e t of ne ce ssary MARKAL data for Energy Carrie r Imports (ex cluding Elec tricity)

Energy Resource name: IMPNGA1 : Natural Gas Imports

Year = 1990 2000 2010

MARKAL Parameter short description [a]

MARKAL

Parameter name Units Period = 1 2 3

[b]

Bound on activity: resource technology - (lower (LO)

and/or upper (UP), or fixed (FX)) BOUND (BD)Or PJ

Annual resource cost COST $m/PJ [c] 5 5 5

Total resource availability [d] CUM PJ

Annual delivery cost DELIV(ENT) $m/PJ [c]

Emissions coefficient/resource capacity ENV_SEP(co2) mt C/PJ 0.025 0.025 0.025

Maximum annual growth rate GROWTH /year

Incremental capacity over and above growth

constraint [d] GROWTH_TID PJ

Energy carrier input: resource technology (not

export) INP(ENT)r PJ/PJ

Energy carrier output: resource technology (not

export) OUT(nga)r 0 or 1 1 1 1

Fraction of consumption of electr icity by a resource

in peak equations PEAKDA(SEP) fractionWeight for security objective function SECURITY

Start year [d] START year 2000

a See manual for full definition of MARKAL data parameters.

b () indicates that it is a priority to estimate the appropriate value for this parameter.

c $m refers to constant 1990 US$m.

d This is a Time Independent Data (TID) parameter that will not vary over time during the projection period, and, consequently, will have only one data entry.


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ANSWER: Integrating RES, Data &ANSWER: Integrating RES, Data & GraphcisGraphcis


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WhatWhatQuestions Can MARKAL Answer?Questions Can MARKAL Answer?

y How do particular technologies and policies affect

GHG and emissions of other pollutants?

y What are the costs of meeting mitigation targets or the

value of carbon rights?

y How do demand-side actions affect the supply-side

and vice versa?

y How do technology and fuel mix changes resulting

from environmental policies affect energy prices?

y What are the benefits of cooperation mechanisms?


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Benefits of using MARKAL forBenefits of using MARKAL for

Promoting Regional EnergyPromoting Regional Energy

StrategiesStrategiesy Builds in-country capabilities while promoting

regional dialog and cooperation using a common

language.

y Enables evaluation of major projects on a regional

scale.

y Promotes taking advantage of resource diversity.

y Facilitates cost-effective & more rapid mitigation.

y Encourages for more rapid data gathering and

sharing.

y Fosters environmentally responsible and

sustainable development.


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ConclusionsConclusions

CO2 emissions in Latvia will remain well below Kyotocommitment levels, subject to economic growth.

Permit prices are competitive, and should benefit bothLatvia and buyers.

Substantial gains from permit sales seems likely.

Opportunities for further cost-effective CO2 reductionsexist via AIJ.

Development of hedging strategies encourages planningfor high GDP and lower CO2 emissions.

Integrated analyses can provide important insights intoClimate Change policy and implications.

LDA


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Workshop ObservationsWorkshop Observations

The difference between concepts and reality

Pre-workshop needs

informal email exchange between experts and HC team terminology and key concepts information note for HC

team

1st day dialog between experts and HC team

Check-list for HC (and IC/II) on documentation needs

for determination of the National picture


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Workshop Observations (2)Workshop Observations (2)

Controlled wider audience (Balticcountries)

More work to do on Baseline definition andissues Additionality vs. Environmental Progress

Definitive success, with a great deal learned

by all participants


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Workshop Observations (3)Workshop Observations (3)

Develop the idea of in-country SustainableDevelopment Promotion Centers Understanding of the principles of UNFCCC/Protocols (and

IPCC guidelines) as they relate to the country

Host country knowledge and oversight of their CC assets and

opportunities

Compilation of a portfolio of potential projects

Point of contact for interested parties (external and internal)

Tools and the necessary skills Coordinator of a network internal experts

Guidance through the project development process

Ensuring the quality of the credits

Energy Sector Economics

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