Work Package 4: Model Adjustment

Description

In Work Package 4, the models DYNK and ATLANTIS will be prepared for linking.

Adjustment of DYNK

The DYNK (Dynamic New Keynesian) model approach is a hybrid between an econometric Input-Output (IO) and a CGE model (for a comparison of the two approaches, see Kratena 2017, Kratena et al. 2017, or Kratena and Streicher 2009). The model describes the inter-linkages between 59 to 64 NACE industries as well as the consumption of five household income groups (quintiles) by 47 consumption categories (COICOP ) and covers single country economies (e.g. Spain, Austria or EU27 as one economy). In the long-run, parts of the model work similar to a CGE model. The term 'New Keynesian' refers to the existence of a long-run full employment equilibrium, which – starting off from an unemployment equilibrium – will not be reached in the short run, due to institutional rigidities. The model has been extensively used for policy analysis (Sommer and Kratena 2017, Kratena 2018, Kirchner et al. 2019). Macroeconomic energy and environmental analyses, often with consideration of household characteristics, are the core focus of DYNK (Jackson et al. 2014, Kirchner et al. 2019, Kratena 2015, Sommer et al. 2017, Sommer and Kratena 2017). A detailed description of the model is provided in Annex 4. In START2030 we aim to expand the energy supply and the demand side of DYNK. On the supply side we will disaggregate the cost structure of the Input-Output energy sector (NACE sector 40), which comprises the generation and distribution of electricity, natural gas and district heat, into electricity generation technologies (as PV, wind and hydro) as well as the electricity distribution (i.e. grid operation) based on detailed data delivered by the ATLANTIS database as well as Exiobase (www.exiobase.eu) and a literature review. Furthermore, we will investigate the investment cost structure of each technology and the grid (based on ATLANTIS) to be able to economically evaluate distinctive investments in the electricity grid infrastructure. On the demand side we will expand the module of the private households. The module on households in DYNK comprises investment behaviour in durable commodities, such as own houses, vehicles and electric appliances. We expand this approach by a new type of durables – 'energy supply and storage appliances' – allowing to simulate the economic impacts and the increasing role of prosumers in the electricity system and assessing impacts of these developments on different household groups. For this purpose, we will introduce additional household groups into the DYNK model that are differentiated by the degree to which they engage and potentially will engage in 'prosumer' activities of electricity. The final structure of the household sector therefore will expand the actual structure which covered merely five household income groups (quintiles). The methodological steps for this splitting-up of the household sector comprises two steps: (i) analysis of data from renewable support measures for households (subsidies, investment, household characteristics of 'prosumers'), and (ii) matching of household characteristics of 'prosumers' with household characteristics of published household surveys (Household Budget Survey, EU SILC). The new household structure will then be integrated into the adapted DYNK model and the household variables (income, consumption structures) will be linked to relevant variables of the new disaggregated electricity sector in adapted DYNK, that will – in turn – be linked to the adapted ATLANTIS model.

Adjustment of ATLANTIS

ATLANTIS is a techno-economic model of the Continental European electricity sector. The database of the model contains all necessary elements of the physical and economic systems. On the physical side, the model includes the transmission network at various voltage levels (400kV, 220kV and selected 110kV), existing power plants and power plant projects of various types, as well as a geographically referenced energy consumption divided up over nodes. The economic side includes over 100 electricity companies for which a yearly profit and loss account as well as balance record is calculated. Electricity trading is covered by two models: The zonal price market model, which implements implicit Europe-wide market coupling between countries based on net transfer capacities (NTC) and the redispatch zonal price model which uses a DC-optimised load flow (DC-OPF) algorithm (Stigler et al. 2016). For the linkage with the DYNK model, ATLANTIS has to be adjusted so that the input from the DYNK model (electricity consumption) can be added. This has to happen after each scenario run until convergence in both models is achieved. Furthermore, the Austrian electricity grid has to be expanded to include the 110kV voltage level and a calculation method to calculate the investments in the electricity grid infrastructure. Regarding energy storage technologies additionally to the pumped-storage powerplants battery storages will play a bigger role in the scenarios and therefore will be implemented in ATLANTIS.