The National Energy Modeling System

Committee on the National Energy Modeling System

Energy Engineering Board

Commission on Engineering and Technical Systems

in cooperation with the

Committee on National Statistics

Commission on Behavioral and Social Sciences and Education

NATIONAL RESEARCH COUNCIL

NATIONAL ACADEMY PRESS
Washington, D.C.
1992



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The National Energy Modeling System The National Energy Modeling System Committee on the National Energy Modeling System Energy Engineering Board Commission on Engineering and Technical Systems in cooperation with the Committee on National Statistics Commission on Behavioral and Social Sciences and Education NATIONAL RESEARCH COUNCIL NATIONAL ACADEMY PRESS Washington, D.C. 1992

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The National Energy Modeling System NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their competencies and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Frank Press is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Robert M. White is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and of advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. Dr. Frank Press and Dr. Robert White are chairman and vice-chairman, respectively, of the National Research Council. This report and the study on which it is based were supported by Contract No. DE-ACO1-90PE79065 from the U. S. Department of Energy. Library of Congress Catalog Card No. 91-68549 International Standard Book Number 0-309-04634-3 S-476 Additional copies of this report are available from: National Academy Press 2101 Constitution Ave., N.W. Washington, D.C. 20418 Printed in the United States of America

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The National Energy Modeling System COMMITTEE ON THE NATIONAL ENERGY MODELING SYSTEM PETER T. JOHNSON, Chairman, Former Administrator, Bonneville Power Administration, McCall, Idaho DENNIS J. AIGNER, Dean, Graduate School of Management, University of California, Irvine DOUGLAS R. BOHI, Director, Energy and Natural Resources Division, Resources for the Future, Washington, D.C. JAMES H. CALDWELL, Jr., Consultant, Maryland ESTELLE B. DAGUM, Director, Time Series Research Division, Statistics Canada, Ottawa, Ontario, Canada DANIEL A. DREYFUS, Vice President, Strategic Planning and Analysis, Gas Research Institute, Washington, D.C. EDWARD L. FLOM, Manager, Industry Analysis and Forecasts, Amoco Corporation, Chicago, Illinois DAVID B. GOLDSTEIN, Senior Staff Scientist, Natural Resources Defense Council, San Francisco, California LOUIS GORDON, Professor, Department of Mathematics, University of Southern California, Los Angeles VELLO A. KUUSKRAA, President, Advanced Resources, Arlington, Virginia JAMES W. LITCHFIELD, Director of Power Planning, Northwest Power Planning Council, Portland, Oregon STEPHEN C. PECK, Director, Environment Division, Electric Power Research Institute, Palo Alto, California MARC H. ROSS, Professor, Department of Physics, University of Michigan, Ann Arbor EDWARD S. RUBIN, Professor, Departments of Engineering and Public Policy and Mechanical Engineering, and Director, Center for Energy and Environmental Studies, Carnegie-Mellon University, Pittsburgh, Pennsylvania JAMES L. SWEENEY, Chairman, Department of Engineering-Economic Systems, and Director, Energy, Natural Resources, and the Environment Program, Center for Economic Policy Research, Terman Engineering Center, Stanford University, Stanford, California DAVID O. WOOD, Director, Center for Energy Policy Research, Sloan School of Management, Massachusetts Institute of Technology, Cambridge Staff MAHADEVAN (DEV) MANI, Director, Energy Engineering Board and Study Director (until February 1991) JAMES ZUCCHETTO, Senior Program Officer and Study Director (as of February 1991) JUDITH AMRI, Administrative Associate PHILOMINA MAMMEN, Senior Project Assistant ANN COVALT, Consulting Editor

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The National Energy Modeling System ENERGY ENGINEERING BOARD JOHN A. TILLINGHAST, Chairman, Tiltec, Portsmouth, New Hampshire DONALD B. ANTHONY, Consultant, Houston, Texas RICHARD E. BALZHISER, Electric Power Research Institute, Palo Alto, California BARBARA R. BARKOVICH, Barkovich and Yap, Consultants, San Rafael, California JOHN A. CASAZZA, CSA Energy Consultants, Arlington, Virginia RALPH C. CAVANAGH, Natural Resources Defense Council, San Francisco, California DAVID E. COLE, University of Michigan, Ann Arbor, Michigan H. M. HUBBARD, University of Hawaii, Honolulu, Hawaii ARTHUR E. HUMPHREY, Lehigh University, Bethlehem, Pennsylvania (to February 1991) CHARLES IMBRECHT, California Energy Commission, Sacramento, California CHARLES D. KOLSTAD, University of Illinois, Urbana, Illinois HENRY R. LINDEN, Gas Research Institute, Chicago, Illinois JAMES J. MARKOWSKY, American Electric Power Service Corporation, Columbus, Ohio (to February 1991) SEYMOUR L. MEISEL, Mobile R&D Corporation (retired), Princeton, New Jersey DAVID L. MORRISON, The MITRE Corporation, McLean, Virginia MARC H. ROSS, University of Michigan, Ann Arbor, Michigan MAXINE L. SAVITZ, Garrett Ceramic Component Division, Torrance, California HAROLD H. SCHOBERT, The Pennsylvania State University, University Park, Pennsylvania GLEN A. SCHURMAN, Chevron Corporation (retired), San Francisco, California JON M. VEIGEL, Oak Ridge Associated Universities, Oak Ridge, Tennessee BERTRAM WOLFE, General Electric Nuclear Energy, San Jose, California Staff ARCHIE L. WOOD, Executive Director, Commission on Engineering and Technical Systems, and Director, Energy Engineering Board (to January 1991) MAHADEVAN (DEV) MANI, Director, Energy Engineering Board (as of January 1991) KAMAL ARAJ, Senior Program Officer GEORGE LALOS, Senior Program Officer JAMES ZUCCHETTO, Senior Program Officer JUDITH AMRI, Administrative Associate THERESA FISHER, Senior Project Assistant PHILOMINA MAMMEN, Senior Project Assistant

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The National Energy Modeling System DEDICATION This report is dedicated to the memory of David O. Wood, a good friend and colleague. David contributed greatly to energy and economic modeling through his commitment to conceptual rigor and open debate, and especially through his own intellectual integrity. He served as a member of the Committee on the National Energy Modeling System until April 1991.

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The National Energy Modeling System Contents     Executive Summary   1     Principal Findings   2     Principal Recommendations   3     Timing of NEMS Development   3     NEMS Management   3     NEMS Design   4 1   Introduction   9     Study Genesis and Background   10     Scope of the Study   10     Organization of the Report   13 2   NEMS Requirements   15     The Role of Models in Policy Analysis and Planning   15     Energy Policy-Related Models   15     General Approaches to Modeling   17     The Benefits of Models   18     The Limitations of Models   19     The Mission and Functions of DOE and EIA   20     Strategic Analysis   20     Data Collection and Information Dissemination   21     R&D Program Planning   21     Current Modeling Capabilities Within DOE and EIA   22     NEMS in the Broad Context of Policy Analysis   23     Keeping NEMS Outward Looking   24     Capabilities Outside DOE   26     The National Energy Strategy Experience   27     Overview of the NES Exercise   27     Committee View of the NES Analysis   28     Directions in Energy Modeling   31     General Trends   32     Quantification of Uncertainty   34     Long-Term Forecasting   36     NEMS Requirements   38     Findings and Recommendations   42

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The National Energy Modeling System 3   NEMS Architecture   45     Overview   45     Modular Architecture   48     Advantages of a Modular System   49     Disadvantages of Modular Systems   50     Integrating Model Operation   50     Proposed Modules   55     The Control Module   56     Fossil Fuel Supply Modules   56     Energy Conversion Modules   58     Renewable Energy Conversion Modules   59     The International Energy Module   61     The Interindustry Growth Model   63     Energy Demand Modules   64     Reduced-Form Models   74     Satellite Modules   75     Report Writers   77     NEMS Compared to Current DOE Modeling   78     NEMS Treatment of Conceptual Issues   79     Market Disequilibrium   79     Uncertainty   80     Contingent Strategies   81     The Formation of Expectations   82     Environmental Constraints   84     Operational Issues for NEMS Development   85     Recommendations   87 4   Implementation of NEMS   89     Lead Organization for the NEMS   89     Suggestions for Implementation   90     Employee Environment   91     Management of NEMS Development   93     Motivation and Usefulness   95     Recommendations   95     Appendixes     A-1   Scope of Work   97 A-2   Committee Charge   101 B   First Advisory Report   103 C   The Mission and Functions of the Department of Energy   113 D   Illustrative Case Studies   119 E   A Brief Description of DOE and EIA Models   129 F   Meetings and Activities   135     References and Bibliography   141

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The National Energy Modeling System List of Tables 2-1   DOE Policy Issues   30 2-2   Environmental Issues Relevant to NEMS   39 3-1   Available Data and Information, Industrial Energy Demand   71 List of Figures 2-1   Scheme of the National Energy Analysis System and the EIA's scope within it   24 2-2   Scheme of the interface between the NEMS and the National Energy Analysis System   25 3-1   Simple representation of proposed NEMS architecture   47 3-2   Illustration of the convergence of price to a supply-demand equilibrium   52 3-3   Illustration of multiple equilibria   53 3-4   Proposed NEMS architecture in greater detail   55 3-5   Modeling a system-wide environmental constraint   86

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The National Energy Modeling System Acknowledgments The committee gratefully acknowledges the help of the following individuals: Secretary of Energy James D. Watkins; Deputy Secretary of Energy W. Henson Moore; Energy Information Administrator Calvin Kent; Abraham Haspel, Robert C. Marlay, Eric Petersen, Peter Saba, and Linda Stuntz, U.S. Department of Energy; Linda Carlson, John Conti, Ronald Earley, Bob Eynon, Ed Flynn, Douglas R. Hale, John Holte, Mary J. Hutzler, W. Calvin Kilgore, Erik Kreil, Fred Mayes, John Pearson, Lawrence A. Pettis, Susan Shaw, C. William Skinner, and Scott Sitzer, Energy Information Administration; Sharon Belanger and Roger Nail, AES Corporation; Peter Blair, John Gibbons, and Henry Kelly, Office of Technology Assessment; Jae Edmonds, Batelle Pacific Northwest Laboratories; David Gray, David Morrison and Glen Tomlinson, Mitre Corporation; Susan Hickey, Bonneville Power Administration; Eric Hirst, Oak Ridge National Laboratory; Philip Hummell, Rich Richels, and Colleen Hyams, Electric Power Research Institute; Mark Inglis, ICF Resources; Ralph L. Keeney, University of Southern California; Dan Kirshner, Environmental Defense Fund; Lester Lave, Carnegie-Mellon University; Terry Morlan, Northwest Power Planning Council; Dale Nesbitt, Decision Focus, Inc.; Daniel Nix, California Energy Commission; Andrew Plattinga, Resources for the Future; and Miron Straf and Eugenia Grohman, Commission on Behavioral and Social Sciences and Education, National Research Council.

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