Interdependencies between the UK power and gas industries long-term - - PowerPoint PPT Presentation

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Interdependencies between the UK power and gas industries long-term - - PowerPoint PPT Presentation

Feb 22, 2024 677 likes •940 views

Interdependencies between the UK power and gas industries long-term investment decisions Donna Peng Erasmus Mundus Masters in Economics and Management of Network Industries Context: Changes in comp. of energy supplies Data source: DECC

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Interdependencies between the UK power and gas industries’ long-term investment decisions

Donna Peng Erasmus Mundus Masters in Economics and Management of Network Industries

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Context: Changes in comp. of energy supplies

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Background Research question Methodology Future timeline

Data source: DECC

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Context: Changes in comp. of energy supplies

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Background Research question Methodology Future timeline

Data source: DECC

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Context: Changes in industry coordination

Generation Transmission Distribution Retail

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Background Research question Methodology Future timeline

Production/Imports Transmission Distribution Retail

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Context: Changes in industry coordination

Generation Transmission Distribution Retail

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Background Research question Methodology Future timeline

Production Imports

Transmission Distribution Retail

Power wholesale market Gas wholesale market

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What do we seek to understand?

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Background Research question Methodology Future timeline

1.What is the nature,

strength and dynamics of interdependencies between the long-term investment decisions of the power and gas industries?

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What do we seek to understand?

Generation Transmission Distribution Retail

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Background Research question Methodology Future timeline

Production Imports

Transmission Distribution Retail

Power wholesale market Gas wholesale market

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What do we seek to understand?

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Background Research question Methodology Future timeline

1.What is the nature,

strength and dynamics of interdependencies between the long-term investment decisions of the power and gas industries?

2.How will these

interdependencies play

  • ut under uncertainty in

future energy demand, regulatory environment, and macroeconomic environment?

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What do we seek to understand?

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Background Research question Methodology Future timeline

Long-term

  • Capacity

investment Medium-term

  • Bidding in

derivatives market Short-term

  • Bidding of energy

and ancillary services

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How will we answer these questions?

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Background Research question Methodology Future timeline

1.What is the nature,

strength and dynamics of interdependencies between the long-term investment decisions of the power and gas industries?

2.How will these

interdependencies play

  • ut under uncertainty in

future energy demand, regulatory environment, and macroeconomic environment?

Formal model building with systematic scenario analysis

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Background Research question Methodology Future timeline

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Background Research question Methodology Future timeline

Nuclear Coal Oil Gas Biomass Hydro Wind Solar

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Background Research question Methodology Future timeline

Constant evolving sets of institutions, procedures, social relations and infrastructures Markets with different purposes:

  • Day-ahead, Intra day,

Forward, Futures

  • Meeting expected demand,

ensuring system reliability, hedging market risk Market structure and pricing:

  • Perfect competition
  • Oligopoly
  • (Monopoly)

Changing boundaries:

  • Physical interconnections
  • Harmonization of different

power exchanges

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Background Research question Methodology Future timeline

From the simplistic: Extrapolation of historical averages … To the complex: Use of advanced formal models for prediction

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Background Research question Methodology Future timeline

From the simplistic:

  • Aggregated rational agent(s)
  • ptimizing expected

profitability in the UK market

  • given a budget and policy

constraint … To the complex:

  • Differentiated firms
  • Managing varying interests

across multiple industries and geographies

  • With different ability to access

funds and lobbying power

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Background Research question Methodology Future timeline

(Partially) endogenous generation of gas price through the gas sector model

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Background Research question Methodology Future timeline

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Background Research question Methodology Future timeline

Endogenous generation of gas consumption through the power sector model

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Background Research question Methodology Future timeline

Black box approach: impact of local supply and demand on gas price to be determined statistically

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Background Research question Methodology Future timeline

Analogous to power sector counterpart sub-models

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Background Research question Methodology Future timeline

Key concern: interfacing of GAMS and Vensim through VBA

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What are the next steps?

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Literature review

  • UK power and gas industry decision framework
  • Modeling of investment decisions in deregulated markets

Model development

  • Investment decision model development
  • Forecasting sub-model development
  • Wholesale market

Scenario development

  • Identification of key uncertainties through sensitivity analysis
  • Review of existing forecasts
  • Formulation of sets of plausible future scenarios (3-5)

Background Research question Methodology Future timeline

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What are the next steps?

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Literature review

  • UK power and gas industry decision framework
  • Modeling of investment decisions in deregulated markets

Model development

  • Investment decision model development
  • Forecasting sub-model development
  • Wholesale market

Scenario development

  • Identification of key uncertainties through sensitivity analysis
  • Review of existing forecasts
  • Formulation of sets of plausible future scenarios (3-5)

Background Research question Methodology Future timeline

Candidate variables:

  • Discount rate
  • Carbon price
  • Power capacity payment
  • Power demand (evolution)
  • …
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What are the next steps? (Continued)

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Simulation

  • Simulation of model using the scenarios formulated
  • Revision of original model if necessary
  • Development of non-modeler friendly user interface

Reporting

  • Write, write, write
  • Compilation of graphics

Final deliverables

  • Master thesis and presentation at the Florence School of Regulation
  • Oxford Institute for Energy Studies publication
  • Future System Dynamics conference paper?

Background Research question Methodology Future timeline

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Interdependencies between the UK power and gas industries’ long-term investment decisions

Donna Peng Erasmus Mundus Masters in Economics and Management of Network Industries