Scenarios for assessing profitability and carbon balances of energy investments in industry
Rapport, 2010
The industrial sector can be a major contributor
to increased energy efficiency and reduced CO2
emissions provided that appropriate energy saving
investments are made. Profitability and net CO2
emissions reduction potential of such investments
must be assessed by quantifying their implications
within a future energy market context. Future energy
market conditions are subject to significant
uncertainty. One way to handle decision-making
subject to uncertainty regarding future energy
market conditions is to evaluate candidate investments
using different scenarios that include future
fuel prices, energy carrier prices, CO2 emissions
associated with important energy flows related
to industrial plant operations, etc. In this report,
such scenarios are denoted “energy market scenarios”.
By assessing profitability for different
cornerstones of energy market conditions, robust
investment options can hopefully be identified, i.e.
investment decisions that perform acceptably for a
variety of different energy market scenarios.
Energy market parameters within different scenarios
must be consistent, i.e. different energy
market parameters must be clearly related to each
other (e.g. via key energy conversion technology
characteristics and substitution principles). For
constructing consistent scenarios, a calculation
tool incorporating these interparameter relationships
is essential. Hence, the Energy Price and
Carbon Balance Scenarios tool (the ENPAC tool)
was developed by the authors and is also presented
in this report. The ENPAC tool calculates
energy prices for a large-volume customer based
on forecasted world market fossil fuel prices and
relevant policy instruments (e.g. costs associated
with emitting CO2, different subsidies favouring
renewable energy sources in the electricity market
or the transportation fuel market), and key characteristics
of energy conversion technologies in the
district heating and electric power sectors.
Required user inputs to the ENPAC tool include
fossil fuel prices and charge for emitting CO2
(other policy instruments can be included on an
optional basis). Based on these inputs, the marginal
technology for electricity generation can be
determined by setting the technology with lowest
cost of electricity production as build margin. The
resulting build margin determines the electricity
wholesale price together with CO2 emissions associated
with marginal use of electricity. In the next
step, the wood fuel market price is calculated based
on the willingness to pay for a specified marginal
wood fuel user category. The CO2 emission
consequences of marginal use of biomass can thus
also be determined, assuming that biomass is a limited
resource. Finally, the willingness to pay for
industrial excess heat in the district heating market
is determined based on the identified price setting
technology in a representative heat market. With
this procedure, consistent future energy market
prices can be determined. Moreover, CO2 emissions
related to marginal use of the energy streams
can also be determined.
Using the ENPAC tool, eight energy market scenarios
covering a time period from 2010 to 2050
have been developed for the EU energy market.
The eight scenarios are a result of combining two levels of fossil fuel prices and four level of CO2
emissions charge. Two levels of fossil fuel prices
represent different developments on the fossil fuel
world market. Four levels of CO2 emission charge
were chosen so as to reflect a wide spectrum of political
ambitions to decrease CO2 emissions, ranging
from weak to strong ambition levels.
The ENPAC tool and the scenarios are developed
for European conditions without taxes. Additional
input may be required concerning taxes and policy
instruments in order to reflect local conditions in
specific markets.