New climate- and energy policies can have profound impacts on both energy system and economy. IntERACT is a model that can shed light on these impacts. The purpose of the model is to give a solid foundation to guide and inform policy makers.
Access to plenty and affordable energy is of great importance to the economy, and it is climate and energy policy that set the regulatory framework for the energy system. This strong interdependence between economy, energy and policy is the fulcrum for IntERACT1.
IntERACT strengthens the analytical foundations for climate and energy policy
IntERACT is developed with a focus on a comprehensive description of the Danish economy and the Danish energy system, with keen attention to the interactions of economy and energy system. For example how energy policy impacts the economy through the energy system, and vice versa.
For instance, an introduction of regulation or taxes with the purpose of limiting or promoting the use of specific fuels will influence significantly how the energy system evolves over time, ie. which types of power plants are build, how they are run and what the cost of energy is to households and industry.
The price of energy affects consumption choices of agents, for example by limiting disposable income of households or changing consumption patterns, or by changing the production costs for industry thus affecting the international competitiveness of Danish industry. Whereas the overall economic activity in return determines how much energy is demanded.
IntERACT links economic and technical modelling
The IntERACT-model consists of two models. The first is an economic model that describes the macroeconomic flows and market interactions using a neoclassical computable general equilibrium model framework. The second is a detailed, technical energy system model, which is a Danish version of the internationally used TIMES-model2. The strength of IntERACT lies in the models ability to describe fundamental economic relationships based on economic theory, and at the same time keep track of thermodynamics, physical laws and technology development.
The economic model keeps track of monetary flows. These are wages on the labour market, government surplus or deficits, production across sectors, household income, consumption and savings, as well as foreign trade and international capital flows.
The technical model keeps track on how the energy system works. How and where is electricity and heat produced, what technologies are in use, how and where is energy transported through power and heating grids, how much energy is traded internationally, and how large are investments in the energy sector. In addition, the model tracks the consumption side, ie. how energy is used by households and industry, and what and how much energy efficiency potentials are utilised.
An improved tool for counterfactual analyses
It is important to stress that IntERACT is a tool for counterfactual analyses. It is a tool that can estimate the overall impacts for both economy and energy system from changes in climate and energy policy. In essence, this means that IntERACT can estimate changes to for example GDP, foreign trade, sector distribution and income, and evaluate changes to use of coal, oil, gas, renewables and district heating.
Documentation of IntERACT
The team behind IntERACT continually develop the model and produce documentation of the model setup, characteristics and data. This work is published on this webpage.
The views expressed in the Working Paper Series represent work in progress, and do not necessarily represent those of the Danish Energy Agency or policies of the Danish Ministry of Energy, Utilities and Climate. The papers do not themselves represent policy advice in any form.
The papers are internal working papers published in good faith to inform a wide audience. While every effort is made to keep available working papers current, papers, its employees or agents make no warranty, expressed or implied, as to the accuracy of the information presented herein.
The Working Paper Series include work undertaken by Danish Energy Agency staff as well as work undertaken external researchers or consultants.
IntERACT is funded in the Danish Energy Agreement and is housed by the Danish Energy Agency
The project was initiated by the Danish Energy Agreement from 22 March 2012 that stipulates the construction of a general equilibrium model for Denmark and the Danish energy system. The development is funded by 15.2 mill. DKK over the period 2012-2015. The wording is:
The development of a general equilibrium model of the Danish energy system and economy to identify effective policies and future regulatory initiatives (own translation).
The work is housed in the Danish Energy Agency in order to tap in to the synergies from the expertise and modelling tools already present there.
1) Integrated Economic eneRgy Applied Computational Tool.
Ramses (version 6) is a techno-economic model describing the production of electricity and district heating in an arbitrary number of areas, currently the Nordic countries.
Linear optimization model
Ramses is a semi-linear optimization model that can calculate production, fuel consumption etc. on a very large number of plants on an hourly basis. Since the model is primarily intended for analyses of effects in Denmark, the Danish plants are currently described in more detail than the plants of other Nordic countries.
The model also calculates the price of electricity, which creates balance in the market. In the electricity sector the Nordic countries are divided into 5 fields separated by transmission links with a maximum transmission capacity. If the transmission demand exceeds capacity, it is possible to get different electricity prices in the areas. The five areas are Finland, Sweden, Norway, West and East Denmark. At the district heating sector there are far more isolated areas, each with its own price.
Besides information about the transmission links, detailed information on plant type, efficiency and size, the model has the following input: fuel prices, prices of CO2 emissions, fuel taxes, as well as electricity and water heating demand. Output from the model is production, fuel consumption, emissions of the individual plants and prices of electricity in each area.
Method for the Model
The model works in the way that all plants in each area are sorted by the short-term, marginal production cost of electricity. The works are to produce one by one – starting by the cheapest – and continues until the demand (including any need to export or import) of each operating hour is satisfied. Hence, the marginal cost of the most expensive plant determines the price of electricity in the area. Large hydropower is treated in a special way, because the water from the reservoirs can shift the timing of production from strategic considerations.
Investments in the model
The decision of investment in new plants are going on outside the model. There will only be invested if the calculations of the model show that the plant can earn the investment back, with assumptions about contribution rates for a given renewable energy (especially wind), free CO2 emissions to fossil-based plants, etc. Plants located in an area with a need for district heating typically have a competitive advantage because of the revenue from heat sales.
Security of supply
Besides prices and quantities the model may provide an estimate of the overall supply of electricity. This is happening in light of stochastic input describing the probability of damage on plants or transmission links, time series on production from wind and hydropower and consumption variability.
Application of the model
Ramses is used for both scenarios and analyses. For example, it has been used for analyses on the impact of new transmission links, new wind farms, changes in consumption of electricity or changed prices on fuel and CO2 emissions. For more information see: A very detailed and technical description of Ramses (in Danish).
Elmodel-bolig is a forecasting tool for the Danish housing sector's electricity consumption. The model is financed by Energinet.dk, Danish Energy Association, Savingtrust, and Danish Energy Agency.
Elmodel-bolig describes the electricity consumption of households based on various appliances' diffusion, effectiveness, and useful life.
The model is using data on the household’s amount of pieces of power equipment. Data have been collected every other year since 1974 for approximately 2000 households, representative spread across type of housing, location, etc. The model operates with just 30 specific device types, described by their diffusion, application rate and specific power consumption and size and lifetime distributions.
From these data are made scenarios of electricity consumption valid for the Danish housings. Here the effect of assumptions for certain appliances or appliance groups can be calculated.
The paper presents a model of households’ choices of heating technology. The model predicts how households switch the source of heating if the relative costs of heating technologies change. The model also describes how fast the change occurs.