Improving the Representation of Energy Efficiency in an Energy System Optimization Model
Published in Applied Energy , 2022
Recommended citation: Patankar, N., Fell, H., DeCarolis, J., de Queiroz, A.R., Curtis, J., (2022) Improving the Representation of Energy Efficiency in an Energy System Optimization Model, Applied Energy, Vol 306(B): 118083 https://doi.org/10.1016/j.apenergy.2021.118083
Energy system optimization models (ESOMs) are designed to examine the potential effects of a proposed policy, but often represent energy-efficient technologies and policies in an overly simplified way. Most ESOMs include different end-use technologies with varying efficiencies and select technologies for deployment based solely on least-cost optimization, which drastically oversimplifies consumer decision-making. In this paper, we change the structure of an existing ESOM to model energy efficiency in way that is consistent with microeconomic theory. The resulting model considers the effectiveness of energy-efficient technologies in meeting energy service demands, and their potential to substitute electricity usage by conventional technologies. To test the revised model, we develop a simple hypothetical case and use it to analyze the welfare gain from an energy efficiency subsidy versus a carbon tax policy. In the simple test case, the maximum recovered welfare from an efficiency subsidy is less than 50% of the first-best carbon tax policy.
Conceptual cash and commodity flows of energy efficiency representation in an ESOM
Energy efficiency representation in TEMOA. Note that this representation includes a government that can levy a carbon tax and subsidize investments in energy efficiency.