Representing the Costs of Low-Carbon Power Generation in Multi-region Multi-sector Energy-Economic Models

Summary: A challenging task for long-term electricity projections is capturing the fundamental technical and economic implications of the competition between generation technologies. A key issue is the intermittency of renewables in situations where the currently-existing dispatchable capacity retires and is no longer available. One potential solution for improving forecasts lies in using more detailed electricity models, such as hybrid capacity expansion-dispatch models, and different frameworks for combining economy-wide models with detailed electricity models exist. However, these detailed models are available only for a limited set of countries or regions within a country, which makes their application to global or multi-region projections problematic.

At the same time, multi-region, multi-sector dynamic energy-economic models, such as computable general equilibrium (CGE) models, are valuable tools that can capture important interactions between multiple sectors and regions. Most of these models approximate the major dynamics related to the competition between different power generation technologies by representing technological details in power generation in an aggregated fashion. This paper provides a simple but instructive method for modeling the change in competiveness of different electricity technologies, including a range of carbon capture and storage (CCS) technologies, in multi-region multi-sector dynamic energy-economic models.

For illustration, the authors incorporate this method into the MIT Economic Projection and Policy Analysis (EPPA) model, and run several scenarios. Their analysis and results provide insight on the relative costs of deployment of different low-carbon power generation technologies depending on assumptions about carbon policy stringency.