MARKAL Model for MacedoniaMARKAL Model for Macedonia

Macedonian Academy of Sciences and Arts (MANU)

Skopje, March 1, 2011

Organization Chart for Strategic Organization Chart for Strategic Planning ActivityPlanning Activity

USAID Ministry of Economy

IRG/CRES Consultant Team

Planning Team

Ministry Coordinators

MANU

Planning TeamPlanning Team Key organizations involved in model development

– Ministry of Economy (MoE)– Research Center for Energy, Informatics and Materials - Macedonian

Academy of Sciences and Arts (ICEIM - MANU) Composition of the Planning Team

Ministry Coordinators:Elena KolevskaViktor Andonov (Core Group Member)

Support Team:Acad Jordan Pop-JordanovAcad Gligor Kanevce (Core Group Leader)Acad Tome BosevskiProf. Anton CausevskiProf. Natasa MarkovskaVerica Taseska (Core Group Member)Nikola Bitrak (Core Group Member)

3

4

Introduction to MARKALIntroduction to MARKAL

Key Aspects of MARKALKey Aspects of MARKAL Encompasses an entire energy system from resource extraction

through to end-use demands as represented by a Reference Energy System (RES) network

Employs least-cost optimization Identifies the most cost-effective pattern of resource use and

technology deployment over time Provides a framework for the evaluation of mid-to-long-term

policies and programs that can impact the evolution of the energy system

Quantifies the costs and technology choices that result from imposition of the policies and programs

Identifies the benefits arising for various policies and programs (e.g., increase energy security and economic competitiveness, reduced emissions)

55

MARKAL Reference Energy SystemMARKAL Reference Energy System

6

Uranium

Natural Gas

Oil

Oil

Refining

Coal

Renewables

Electricity Generation

Industry

Industry

Commercial

Residential

Automobiles

Uranium

Natural Gas

Oil

Oil

Refining

Coal

Renewables

Electricity Generation

Industry

Industry

Commercial

Residential

Automobiles

What types of policy questions is it What types of policy questions is it good at answering?good at answering?

Impacts of technology development programs Mandatory micro-measures in each sector: building code,

building retrofit programs, modal-split incentives in freight and passenger transports, energy efficiency programs, etc. vehicle standards

Energy taxes, investment subsidies (e.g., green and white certificates, clean/efficient technologies)

Renewable portfolio or performance standards Energy security evaluation (oil/gas/nuclear fuel imports energy

options evaluation) Emission targets and mechanisms (e.g., cap and trade, taxes,

sector intensity) Merits of education, information dissemination Impact of social constraints, e.g. nuclear

Key InputsKey Inputs Current Energy Balance and characterization of the associated

stock of existing technologies Resource supply (step) curves, and cumulative resource limits The characterization of future technology options

– Fuels in/out, efficiency, availability, technical life duration– Investment, fixed and variable O&M costs, and “hurdle” rates– Emission rates– Limits on technical potential– Performance degradation (e.g., efficiency, maintenance costs)

Demand breakdown by end-use– Demand for useful energy– Own price (and income) elasticities {optional}– “Simplified” load curve

Discount rate, reserve margin

8

Key IndicatorsKey Indicators Total cost of the energy system

– Investment and operating costs for power plants and demand devices– Expenditure on fuels– Other annual expenditures

Total primary energy– Domestic production and imports by fuel

Fuel consumption levels– Electricity generation fuel mix– Fuel choice and levels for each service demand– Electricity timing and level (peak) by season/time-of-day

Investments requirements for new supply and demand technologies – Nature and timing of power plant builds, and refurbishment– Device (and fuel) choice

Energy (marginal) prices– Fuel to each demand sector (with/without subsidies) – Electricity by time-of-use

Emission – Sources and levels– (Marginal) cost of carbon

9

Activities UndertakenActivities Undertaken Development of Reference scenario, reflecting current

knowledge of energy system evolution and probable future options (planning period 2006 - 2030)

Key areas of analysis– Renewable Target analysis, based on EC analysis of RE

contribution, and in support of domestic RE Implementation Plan.

– Energy Efficiency (EE) analysis, allowing for greater uptake of efficient technologies, implying appliance standards, for example. In addition, combined analysis with RE target.

– Sensitivity analyses: postponed investment in electricity generation capacity, higher RE Targets, CO2 tax, CO2 cap

10

11

Reference (Business-as-usual) Reference (Business-as-usual) Scenario AssumptionsScenario Assumptions

Calibrated to 2006 Energy Balance National assumptions of economic growth and demographics,

and their relationship to future demand for energy services Generally aligned with Strategy for Energy Development of the

Republic of Macedonia until 2030 Base year energy prices from Macedonian sources,

international energy price for projections from IEA-WEO 2009 Firm power plant builds (and retirements) Continued use of conventional fuels and technologies Limited introduction of conservation or demand management

measures Known national policies (e.g. Feed-in Tariffs (FIT) for

wind/solar)

12

Renewable Energy Analysis: Renewable Energy Analysis: Defining the Target & GoalDefining the Target & Goal

Renewable Energy (RE) share in base year (2005)– Based on national data sources, cross-checked with IEA and other public statistics– US EIA data used to inform ‘normalised’ hydro levels

Flat rate increase of 5.5% on base year RE share– Figure based on EU 27 equally sharing half of their total ambition

Additional requirement based on relative level of GDP per capita in 2005

– Assumes additional effort per capita adjusted to account for relative GDP level – Percentage increase calculated as additional effort divided by forecast final energy in 2020

Determine the optimal mix of power sector and demand shift to renewable sources, and what it displaces and costs

13

Energy Efficiency Potential Analysis Energy Efficiency Potential Analysis DescriptionDescription

Reference scenario assumption is that mainly conventional demand devices are chosen and limited conservation is the norm

Use level of improved demand technology options for each demand service allowed them to reach up to 50% of the market share for new device purchases in 2030

Reflects policies to set appliance and building standards and limit the use of inefficient devices (e.g. prohibiting incandescent bulbs)

Determine the economic optimal penetration level of the efficient and conservation options, and the resulting energy savings and costs

14

Renewable scenario is slightly more expensive (~0.42% or €62 million NPV (2006)) compared to the Reference Case, reflecting the high cost of the renewable technologies

Higher penetration of energy efficiency technologies can lead to significant reductions in system costs (-2.3%), due mainly to savings on fuel (-6.3%), even when RE Targets are imposed

Impact on the Overall Cost of the Impact on the Overall Cost of the Energy System (% change)Energy System (% change)

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

RE Target Energy Efficiency

RE Target + Efficiency

Change in Total System Cost

14

15

Difference in Annual Energy Difference in Annual Energy System CostsSystem Costs

Annual costs (relative to Reference) increase under the RE target case once target implemented in 2021, rising up to €29 million by 2021 and stabilizing

Promoting Energy Efficiency can lead to significant annual savings in fuel supply of around 6.3% in 2030 without RE Target and 7.9% when there is an RE Target in place

-250

-200

-150

-100

-50

0

50

100

150

2006

2009

2012

2015

2018

2021

2024

2027

2030

2006

2009

2012

2015

2018

2021

2024

2027

2030

2006

2009

2012

2015

2018

2021

2024

2027

2030

RE Target Energy Efficiency RE Target + Efficiency2006

MEu

ro

Change in Annual System Costs

Annualized Investment (Power)Annualized Investment (Demand)O&M and Deliv Costs (Power)O&M and Deliv Costs (Demand)O&M and Deliv Costs (All)Fuel Supply Costs

Net

Changes in Total Primary EnergyChanges in Total Primary Energy In all three scenarios - large reduction of imported gas In the EE cases - important reduction in oil imports (transport sector not

included) In the RE cases - significant displacement of fossil fuels (as expected) totalling

1246 ktoe over the planning horizon

16-350

-300

-250

-200

-150

-100

-50

0

50

100

150

2006

2009

2012

2015

2018

2021

2024

2027

2030

2006

2009

2012

2015

2018

2021

2024

2027

2030

2006

2009

2012

2015

2018

2021

2024

2027

2030

RE Target Energy Efficiency RE Target + Efficiencyktoe

Difference in Primary Energy

Renewables

Oil

Natural gas

LPG

Electricity Imports

Coal

Biomass

Electric Generation and Imports – Electric Generation and Imports – (change from Ref.)(change from Ref.)

17

Under RE Target case: Increased generation from hydro plant (2021-27) and wind (in 2030); Reductions in coal and gas generation and electricity imports

Under EE and RE+EE case reductions in gas-fired generation and more hydro generation in RE+EE case

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2006

2009

2012

2015

2018

2021

2024

2027

2030

2006

2009

2012

2015

2018

2021

2024

2027

2030

2006

2009

2012

2015

2018

2021

2024

2027

2030

RE Target Energy Efficiency RE Target + Efficiency

GW

h

Difference in electricity generation

Renewable and Other power plants

Oil-fired power plants

Hydroelectric power plants

Gas-fired power plants

Electricity imports

Coal-fired power plants

18

Decrease in Final Energy Decrease in Final Energy Consumption by SectorConsumption by Sector

Under the energy efficiency cases overall reduction in final energy consumption reaches 5% in 2030, mainly from electricity and oil

More efficient appliances for lighting, cooling and heating in buildings, and in iron & steel and non-metallic minerals industry (advanced technologies mainly using electricity and biomass).

-13%

-12%

-11%

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-130

-120

-110

-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

200620092012201520182021202420272030 200620092012201520182021202420272030

Energy Efficiency RE Target + Efficiency

ktoe

Change in Final Energy Consumption by sector

Residential

Industrial

Commercial

Agriculture

Total %

19

Under RE Target case fossil fuels generation (coal- and gas-fired) is displaced by hydro, resulting in cumulative CO2 emissions reduction of 1.5%

Under EE case lower demand of electricity reduces the gas-fired generation, leading to cumulative emissions reductions of around 3%

The combination of both, lower demand and displacing fossil fuel generation with renewables under RE+EE case, reduces the CO2 emissions by ~4 %.

Cumulative difference in COCumulative difference in CO22 EmissionsEmissions

-4.5%

-4.0%

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

RE Target Energy Efficiency RE Target + Efficiency

CO2 Cumulative Difference from Reference

19

ConclusionsConclusions – RE Target – RE Target

Renewable targets are achievable at modest additional cost (result of significant investment levels in renewable generation as part of the current energy strategy)

The most cost-effective technologies are hydro and wind generation to the limits of their availability (incentives must be in place to ensure the required investment levels)

A higher RE target can achieve important co-benefits of enhancing energy security and lowering carbon emissions.

20

ConclusionsConclusions – Promoting Energy – Promoting Energy EfficiencyEfficiency

Economic benefits could be significant due to availability of negative cost options.

A wider economic assessment of the barriers to uptake and appropriate policy mechanisms should be undertaken.

Model results should be used as a starting point to identify the most economically attractive technologies.

21

Conclusions - Conclusions - Synergies RE and EESynergies RE and EE

Energy efficiency plays a key roll for achieving renewable target, energy security, and climate change mitigation goals

Both renewable and energy efficiency strategies have strong synergies with low carbon objectives

The analytic framework provides an important ability to assess a wide range of energy policy issues, and to advise the formulation of comprehensive strategies to guide the development of the Macedonian energy system

22