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 Background Research question Methodology Future timeline 2
Context: Changes in comp. of energy supplies Data source: DECC Background Research question Methodology Future timeline 3
Context: Changes in industry coordination Generation Transmission Distribution Retail Production/Imports Transmission Distribution Retail Background Research question Methodology Future timeline 4
Context: Changes in industry coordination Power wholesale market Generation Transmission Distribution Retail Gas wholesale market Production Transmission Distribution Retail Imports Background Research question Methodology Future timeline 5
What do we seek to understand? 1. What is the nature, strength and dynamics of interdependencies between the long-term investment decisions of the power and gas industries? Background Research question Methodology Future timeline 6
What do we seek to understand? Power wholesale market Generation Transmission Distribution Retail Gas wholesale market Production Transmission Distribution Retail Imports Background Research question Methodology Future timeline 7
What do we seek to understand? 1. What is the nature, 2. How will these strength and dynamics of interdependencies play interdependencies between out under uncertainty in the long-term investment future energy demand, decisions of the power and regulatory environment, gas industries? and macroeconomic environment? Background Research question Methodology Future timeline 8
What do we seek to understand? Long-term Medium-term - Capacity Short-term investment - Bidding in derivatives market - Bidding of energy and ancillary services Background Research question Methodology Future timeline 9
How will we answer these questions? 1. What is the nature, 2. How will these strength and dynamics of interdependencies play interdependencies between out under uncertainty in the long-term investment future energy demand, decisions of the power and regulatory environment, gas industries? and macroeconomic environment? Formal model building with systematic scenario analysis Background Research question Methodology Future timeline 10
Background Research question Methodology Future timeline 11
Nuclear Coal Oil Gas Biomass Hydro Wind Solar Background Research question Methodology Future timeline 12
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 Background Research question Methodology Future timeline 13
From the simplistic: Extrapolation of historical averages … To the complex: Use of advanced formal models for prediction Background Research question Methodology Future timeline 14
From the simplistic: • Aggregated rational agent(s) • optimizing 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 Background Research question Methodology Future timeline 15
(Partially) endogenous generation of gas price through the gas sector model Background Research question Methodology Future timeline 16
Background Research question Methodology Future timeline 17
Endogenous generation of gas consumption through the power sector model Background Research question Methodology Future timeline 18
Black box approach: impact of local supply and demand on gas price to be determined statistically Background Research question Methodology Future timeline 19
Analogous to power sector counterpart sub-models Background Research question Methodology Future timeline 20
Key concern: interfacing of GAMS and Vensim through VBA Background Research question Methodology Future timeline 21
What are the next steps? • UK power and gas industry decision framework • Modeling of investment decisions in deregulated markets Literature review • Investment decision model development • Forecasting sub-model development Model • Wholesale market development • Identification of key uncertainties through sensitivity analysis • Review of existing forecasts Scenario • Formulation of sets of plausible future scenarios (3-5) development Background Research question Methodology Future timeline 22
What are the next steps? • UK power and gas industry decision framework • Modeling of investment decisions in deregulated markets Literature review Candidate variables: • Discount rate • Investment decision model development • Carbon price • Forecasting sub-model development • Power capacity payment Model • Wholesale market development • Power demand (evolution) • … • Identification of key uncertainties through sensitivity analysis • Review of existing forecasts Scenario • Formulation of sets of plausible future scenarios (3-5) development Background Research question Methodology Future timeline 23
What are the next steps? (Continued) • Simulation of model using the scenarios formulated • Revision of original model if necessary Simulation • Development of non-modeler friendly user interface • Write, write, write • Compilation of graphics Reporting • Master thesis and presentation at the Florence School of Regulation • Oxford Institute for Energy Studies publication Final • Future System Dynamics conference paper? deliverables Background Research question Methodology Future timeline 24
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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