The structure of the energy submodel

The energy submodel has five components containing solutions for

• electricity supply characteristics (fuel use, generating capacity)

• secondary energy demand by user in aggregate

• fuel use by energy carrier and user

• the prices of fuel use by user

• emissions to the atmosphere

The weather influences energy demand in the model through the average temperature variables in equations for the aggregate demand for energy and those for the substitution between fuels. The dollar oil price is also exogenous, being determined by the world market. And government policy, expressed through direct subsidies to the coal industry and regulations concerning the setting of electricity and gas prices, determines the relative prices of the other principal energy carriers.

On the energy supply side, the electricity industry is assumed to invest in new generating plant and to utilize the existing plant according to the demand for electricity, the plant available and the cost of fuel and capital. The type of plant in the system and its utilization in each year determines the fuels used and the price of electricity to the contract market.

On the energy demand side, secondary energy demand in aggregate by the ten final users is determined by a set of equations very similar to those developed by the UK DEn. These include the effects of economic activity, relative prices, deviations of temperature from normal values and the miners' strike of 1984. These aggregate demands are then allocated across the different fuels by means of a set of share equations. First the share of electricity demand in the total is determined and then the non-electricity demand is divided between coal, oil products and gas. The relative prices for energy and the fuels are derived from world prices, the UK tax structure and the regulatory rules. Finally own use of energy is taken as a fixed proportion of the total by energy type.

The feedback from the energy sub-model to the rest of the model is as follows. Changes in fuel use by the domestic sector determine changes in consumers' expenditures in constant prices on electricity, gas, coal, heating oils and petrol. Changes in fuel use by other final demand are used to determine the share of government expenditure on fuels. For industrial use of fuels, the implied changes in the input-output coefficients are calculated at the nine-industrial-sector level of the energy model and are applied to the coefficients at the full forty-three-industry level of the economic model. The coefficients for fuel use by the electricity industry are entered directly into the full input-output coefficient table. Finally the mix of regulated and contract-market prices for electricity is averaged to give the electricity price in the main model.

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