Market Clearing and Utilization🔗
The Market and Utilization sector uses a market clearing theory to balance supply and demand given costs, prices, and assumed market attributes. In summary, the model includes the following:
- Extraction capacity and price of extracted fuels.
- Supply/demand/price of each fuel for nonelectric consumption. The variable costs include the extracted fuel price contracted over a period, adjusted by any taxes or subsidies.
- Supply/demand/price of electricity, where the variable costs include the extracted fuel price marked up by a ratio and contracted over a period, adjusted by any taxes or subsidies.
- For each delivered fuel for nonelectric consumption, the recent market price of each fuel relative to the reference market price of each fuel adjusts the actual demand from that at normal utilization. For each fuel, the normal demand is the sum of the long term demand for nonelectric consumption accounting for noncost phase-out policies.
- For electricity, the recent market price relative to reference market price adjusts the actual demand from that at normal utilization.
Market Price of Extracted Fuel🔗
The market price of extracted fuels depends on the utilization and price effects as well as the cost of extraction, which depends on technological cost improvements and overheating of capacity, and resource constraints, all described in Supply.
Market Clearing and Utilization🔗
The market price and utilization of electricity and delivered fuels for nonelectric consumption depends on the long term demand, the supply capacity, and market price adjustments. Utilization of each source is a function of unit margins and the short term supply curves, defined by generalized logistics functions, but may be reduced by noncost phase-out policies. For nonelectric delivered fuels, the market price of each fuel is equivalent to the revenue for it. For electricity, the revenue is the market price of electricity less the transmissions and distribution (T&D) costs. The consumer pays the T&D costs, defaulted to $0.02/kWh, to the utility regardless of the electricity generator. T&D costs are not subject to the learning or breakthroughs; they are assumed to remain constant throughout the simulation (see EIA 2017 and Fares & King 2016). The generator's unit margin may also be increased according to qualifying credits, explained below in Clean Electricity Standards. Capacity of extracted fuels is utilized for electric generation and also processed for delivered fuels for nonelectric carriers.
Tax and Subsidy Adjustments to Costs🔗
A carbon tax on fuels and source taxes reduce the margin and profit of that source; conversely, source subsidies increase the margin and profit of that source.
Source taxes/subsidies can be applied either to capital costs or to variable costs, the fraction of which is determined by
Fraction of fuel source adjustment for capital and
Fraction of elec source adjustment for capital.
For nonelectric consumption, the default is that all taxes/subsidies apply to the variable costs, whereas for electric consumption, the default is that they apply to capital costs. Carbon taxes, which depend on the carbon density of the fuel, increase the variable costs of that fuel.
For fuel-generated electricity, the adjustment to the cost of fuel also depends on the thermal efficiency of that source.
Parameter values for source subsidy/tax inputs range from highly subsidized, defined to be 60% of the marginal cost in 2020, to very highly taxed, defined to be 200% of the marginal cost in 2020. For fuel-generated electricity, the percent thresholds apply to the marginal costs excluding those for fuel. Bounds are set to policy-relevant limits, which are source-dependent.
Clean Electricity Standards🔗
Besides taxes and subsidies, market-driven credits or certificates are another mechanism to drive electricity to achieve target standards. En-ROADS allows the user to choose the sources to be counted as qualifying, the target percent of qualifying sources of electricity produced, the duration over which to achieve the target, and the base cost of the credits or certificates. The costs of buying certificates and potential fines for not reaching the standard are paid for by all sources, whereas only qualifying sources reap the revenue.