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Improving the representation of energy efficiency in an energy system optimization model

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  • Patankar, Neha
  • Fell, Harrison G.
  • Rodrigo de Queiroz, Anderson
  • Curtis, John
  • DeCarolis, Joseph F.

Abstract

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.

Suggested Citation

  • Patankar, Neha & Fell, Harrison G. & Rodrigo de Queiroz, Anderson & Curtis, John & DeCarolis, Joseph F., 2022. "Improving the representation of energy efficiency in an energy system optimization model," Applied Energy, Elsevier, vol. 306(PB).
    • Handle: RePEc:eee:appene:v:306:y:2022:i:pb:s0306261921013696
    DOI: 10.1016/j.apenergy.2021.118083
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