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Lecture Notes in Economics and Mathematical Systems For information about Vosl. 1-100, please contact your bookseller Of Springer.vertag Vol. 101 W M Won"''''. L",,,, M"h,y,,,.bl. Control ;, Geo Val. 1211: H..J. lGlhr. KompIImenlaritl ..· wnd Fior;punklaol.goonro"m'-' .i.n. mill"C ~P<GIIC'" X. 3 •• page. . 1117. dIr ..... ___b KMn "'"oe"mfT'OltUng. ~ ..n d Vol 102 Anel," ec.n •••••1 s.. Ap~,canon. ComlMn Rend" .. Vll,14G SIrIIIn. 11178. Jln.,,, III" Ed,'~ by J.p ""1M. IV. 2• • ~. IIIH Vol. 130: Mwh,pIe C". .... DlcrIlnO.l,l ,M,,. lung, Joup·.,.Jo. ... F. ...... Vol. 103 D E. Bo)oce, A. F.m" R. W.,..:hedel, OpI>",.J SubNI Pr<Xfed;ngI 111711. Ediled by H. .nd S. Zoonllr. VI, '011 pall"- S.lect,on M"II,ple Reg"",on. Inl.rclep.ndenci end Opt"".' 11178. Network ~nll"'. lilli, 181 pag. . 1074 Vol. 131: M. ___ ~cal s,....... Theory. p,.~ 18711. Ed,1Ir;I Vol 10. 5 I'",'no. A N.cH<.'. .....n 111-0'1 01 'nU",on .nd by G. M.,cI>M,ni.nd S. K. Mm.. X. 'OS~. 11178. Economic; GlowI". V. 1111 pag .. UI74 Vol. 132: U. H. Funk .. MtlllemeticaJ Modell on MlrbIi"". II CoIIec· Vol. 105 Opt,,,,,,, Conlrol T'-<)o and rtl ~""'_" P.n I. Pto 1_ 01 Abllnlctl. XX, 1114 ~ 11178. ....0."11. l'i173. Edl~ by e. J. I(Jrby VI. .25 1""01" 11114 Vol 133: W ....... Fell SIn!ol\lr. ,n Mlu-..tocal Eoonoma 11178 . Ed,1ed by 1.1. W. Lot. J. Lot..nd A. Wieo;.ICO" __ V. 1118 """". 11178. Yol. 101. OpI,,,,el Conltol TIIeoty Ind ,It N>P!..:.none. F>.rt II f'l'o OMdu'O' 11173 Ed,'M! by 8. J.I("by. VI .• 03 paQH III" Vol. 134: Computrng MeII>od. on ~oId Sc_.nd ~'''''' Proceed,,,,,, 111711. VIII. 311Optgee. 11178. Vol 107 Co",'01 TII.oI)'. Nu ...." c.I Me1hod, end Comput. . Sp"'" M~,"II 'n. .....r oontJ Syn'I9OIlurn. Rocq.uenco<tI~ J ..... Vol. 13!!i: H. Hega. A Chequ,libr,. .m - Equ.hb:"um ModI! ...1 II Money 11-21,11174 Edlled by A. Ben ........" end J.L lion. VIII, 7&7 poIgH. .nd Bond •. II ~'"' - W.I'. ...n ~,,", •. VI, "8 PfoIl".III78. 1V1o1l7.5 108: F. Sa. ... e\ al., Superct"'(.I01 W"'II s..:: .. on. II. II lUnd· IVnoiCl.O Il"ml.:b Eon.K. XolIi*, .3..5...7:I s G... 1.01n"." 1"8"7.8 E. ntadwodungen bIo IIfW'OII.tlndr~ boo!< V. m IN!I" 1I11!!i Vol. 131: R. Web. Grund,-"," 1<omI." Opirm",ung. VI. 148 s.. ..... Vol. 109 R. won R.ndoow. InlrodUCI'on 10 In. TI,. ., ,, 01 M,IIO,d •. 11178. IX. 102 pallel. 11175. Vol 1311: It Okuguch. EopICtationl.nd Stabill!)r 'nOlogopoir t.IocMIa. Vol. 110 C &neobeol. ()p!o ....1 ConIIoi 01 [)1CIe1. T, ..... Sloc:hnloc VI. 103 pIIlII. 11178. S,..I_ HI '08 pagon. 1111!!i. Vol. 1311: Production Theory end III AppIlC.lbon'. ProoHd'",,1. Edilld Vol 111 V.".bIe SltVCI",' System. "",II> AppIlC.lbOn 10 Et:(III(III"Oa br H. Albach IIId G. BlrIlfnd.hI. VIII. 1113 Pfoll" 11177 . •v rto,3d2B1o opioaglyl8 P'.r 1o1cI7e!e!i dong.11I14 EdotedbyARubert. .r odR RMoh!er FVo"lk. e1r4',0 : T. W.., EAowchOholrnd l..nndd JG. IVnIr~.hn. bTOhnlotf. yV I0I1. IIIGIIe pPlol-loIc"e. I1n1d17io8.. Vol. 112: J. Wilhelm. Ob/Kuy".rod Mwlti'ObI'CIrYI Dec,._ M,lung Vol. 141: Mllllemetocal~.ndGro ..... Theory. EI ... ,.in Honor Under u..c:.rt.,nly.lV. 111 plllI". 1117&. 01 O.IuI, Morll'Mlern. Ed,1ed by R. Henn .nd O. /oIoIKhI,n. XIV. Vol 113 G A. ,,"h'nger. S ..b ololll ......t gen uber '0"",, 001' 103 pegeI. lV71. M""len m,1 _od'o .... ,r>denden Z. .....f Umme<I V 102 Se,I. ... 11I7!!i Val. 1'2: J. S.lIN. On o,:.timll Fllpulltion P1oIll •. V. 123 pIIlII. 11111. Vol. 11" G. Uoobe. Prodllkl_,I"-oe. XVII. 301 s.."" 11178. Vol. 143: B. HI.Iund. An Anal.,." of EI;onomoc: S,t. 00,1t,~. Vol: 11&: Andrtf~ II 11. Foundooloon. 01 $yIrt .... Theo<y: F,nruo" XV. 100 jMlQIIL 11177. .rod Inl,. ..1 Ity Corod~ VII. 113 poogoM. HI7I Vol. 144: eo"n"".e..rr dAonoIIrr.y . ... nd ~ ~lC.IhOllL Proc.ed'ng' IV78. Vol. 118: It Miy&r.I ...... Input·Output AnIIry. ...r od tI>e Struc;l"" of Edlled by A. VI. 2111 """". 1871. Incr:>rM Di'ln~ IX. 13& pIIlII. 11118. Vol. 14!!i: J. R_OIIe<. Eotr_ G.. .....n d T. ...' 5oIu1lont. IV. 1M"". Vol, 117: ()piimoz'loon ,rod ()per.1ooM R_,eII. ProoHd'nglI1I7&. 128 11111; Edited byW.OIIIIi ,rod It R;a.,.IV. 3UI ~ 11178. Vol. '48: In SIIrcll 01 Eoonomoc Indrea ...... Ed,ted br W. H. Sltogoel. XVI, 1111 PI'"".III11. Vol. 118: T"fflc Equrlibnum MeIhodI. Proceed'ng' 11174. Ed,1Id by 101. A. FIori,n. XXlIl432 pIIlII. 11178. Vol. 147: RHOU'QI AlIocaI. .....n d Oovrlion of SpIca. Pr--"ngt. EdMd br T. fup!.nd R. SaIO. VII. 184 """". 11171. Val. 1111: 1,,",1Ion in Small Countr-. PrIlCllld,ng. 11174 EdiIed by H. hid!. VI, 3158 PIIQII. 11171. ,Vno dl. i1n4 S8:o IC".I ·E . .n Md lfWIdIi." S"'r. m..u" l'l. -.....M..C...t.>.n..i.k." u..n.d. IXS.' . 1..7.3.. .sl o.o..M...m. o1d1r1I1I1II Vol. 120: G. ~mp.. Sp.ctllC.ltron .rod Elb ..... tron 01 Multiple Output P>oduction Functoon,. VI. 1111 """,.11178. 1bI. 14V: SIIItonII .. wnd lCh,umplendl e...oIkerungen: tlImog, •. Val. 121: J. W. eon.n. On R""",,"_ Proc:._ ,n a--.g ph""'" NuM' und Nega~_sl..C .h..I.. lum in O'. ...e oc/l ....... u""""""" Theory. IX. 113 pIIlII, 11178. \10ft G. FIid>Ii"lt". VI, 282 1(1". Vol. 122: 101. 5. Satar. .. lAd C. M. sn.a,..Foundlotron. of Opctmot'loon Vol. 1110: Sa_II". Supercrlbcal Wi"" SocIoon. 111. VI, 17V pIIlII. VI. 1113 PIIQII. !1I711 11117. Vol. 123: Muhopll 0","" DIaIion M.k,ng. K)'OIO 1117!!i. EdrIICI by 'obi. l!!il: C. A. &:. ..........8 . "'-"ory-Produclion Theory. VI, 1I I PIIIl'I. M. Zeleny. XXVII. 34!!i pegM. 11178. 11111. Vol. 1'4: 101. J. Todd. T'-Compwlionof Fi,ed Poonla.rod~· Vol. 1112: KOlICh ...1 . Notwrtnd'\t4' OpIo ....I <I.I ..b Id'''''''''''''' wnd bone. VII, 1211 PIIQII. tV78. "".Anwlndw"". VI, 1117 SIiIen. 11171. .V..o.l... s.1 2..k1 .o.:. I.Kl.I nargt OCr 'IMelolgl. ....... OSplatinnd'olltl1l8 T "bIon I/I.QIb~Irr.I rZ UNI' aa.c.If>thm"m" unVgI, VAonlw, 1I&n3d:" "K"o"m,"IK Hnae ..r...w...".."..". "E"n,,I"I cw:honI oTd.u nMg.' pUreobbIl'lnmg «. .n MdI iMI>.o dR6InI . w..n.d. 1'2 11171. s.._. VIII, 208 11178. Vol. 120: Energy. Rl;ionel &:o.nc. .nd Publoc PoIq. Energr Ind Bu.,,..., Enon.onment L Pr~, 11175. Ediled by 101. ChIn." lAd P. V.n Vol. 1114: Problem, .nd In,. ... _ 01 C,cII AnIIIyI< •. Rompuy. VIM, 311 1M"'" IV18. ProoHdi"", 11171. Ediled by W. H. St,Og.!. VI, 442 ptDIL 1878. Vol. 121: Etm.onment, Re;ioneI5c:Mnce.nd 1n1"'~ Modeling. Vol. 11111: Mw. .. .,..Crillrotr Problem 5oIy,,,,,.Pror:4ldlng. 11I71.EdI\ld Energy.nd Eno,'OIIfI'III'rI •. PrOClldlroe-1117&, Edlied by M,a.""" br S.Z"",Ia. VIII. 1187 PllII". 11178. .nd P. VWI Rompu)I.lX. 211 pega. 11178. Vol. 1!!i8: B. NI,lund lAd 8. 5111t11d!, N.o·RlC.lrd"n Theory. WrIII Vol. 128: 1'*9If Progr'lI'Wnrng .nd R"'1ed At .... A ctu,ilied Appiict,1ion, 10 Some C ........ Eoonomic: Problem,. VI, Ifill IMII". Bibliogr.P"J. Ediled by c.1<M1nlng. XI. 411!!i PIiIII-11178. 1818. ~nUn ...U on On page,..8 Lectu re Notes in Economics and Mathematical Systems Managing Editors: M. Beckmann and W. Krelle 222 Peter Meier Energy Systems Analysis for Developing Countries Spri nger-Verlag Berlin Heidelberg New York Tokyo 1984 Editorial Board H. Albach A.V. Balakrishnan M. Beckmann (Managing Editor) P.Dhrymes G. Fandel J. Green W Hildenbrand W Krelle (Managing Editor) H. P. KOnzi G. L. Nemhauser K. Ritter R. Sato U. Schittko P. Schonfeld R. Selten Managing Editors Prof. Dr. M. Beckmann Brown University Providence, RI 02912, USA Prof. Dr. W. Krelle Institut fOr Gesellschafts-und Wirtschaftswissenschaften der Universitat Bonn Adenauerallee 24-42, 0-5300 Bonn, FRG Author Dr. Peter Meier Institute for Energy Research State University of New York at Stony Brook, Graduate Physics Building Stony Brook N.Y. 11794, USA ISBN-13:978-3-540-12879-3 e-ISBN-13:978-3-642-48337- 0 DOI:1 0.1 007/978-3-642-48337-0 This work IS subject to cOPYright. All rights are reserved, whether the whole or part of the material is concerned, specifically those of translation, reprinting, re-use of illustrations, broadcasting, reproduction by photocopying machine or similar means, and storage in data banks. Under § 54 of the German Copyright Law where copies are made for other than private use, a fee is payable to "Verwertungsgesellschaft Wort", MUnich. © by Springer-Verlag Berlin Heidelberg 1984 2142/3140-543210 PREFACE The lecture notes presented in these pages were originally developed for use in the Energy Management Training Program (EMTP), sponsored by the Office of Energy, U.S. Agency for International Development. This program, held at Brookhaven National Laboratory (BNL) and the Institute for Energy Research, State University of New York at Stony Brook, is designed to train mid-career and senior government officials in developing countries in the techniques of energy policy analysis and planning, and covers, in addition to the material presented here, more detailed case studies in resource evaluation, pricing, conservation, financial analysis, and investment planning. Since its incep tion in 1978, some 220 individuals from 57 countries have attended the course. These notes have also been used in executive level seminars and in country training programs in the Sudan, the Dominican Republic, and the People's Republic of China. Attendance at the course is diverse, and typically includes planners, managers, engineers, and economists from energy planning agencies, ministries of finance and economic development, electric utilities, refineries and State Oil Companies, and specialized energy planning units for energy conservation and for regional cooperation. The monograph is designed not just as reading material to support lectures, but also as a general self-contained reference text for a very diverse audience: we have therefore included much introduc tory material. The presentation is focused on a discussion of the basic principles of systems analysis: and the case material has been specially designed to illustrate these principles. Actual case studies are presented in the course using a different set of monographs. III ACKNOWLEDQlENTS Numerous individuals have contributed, directly or indirectly, to this Monograph. A significant debt is owed to the many past participants of the Energy Management Training Program (EMTP), whose insights and frank discus sion of many pressing issues has greatly enriched the case material. Helpful reviews of early drafts of this work, particularly by Jack Allentuck, and many discussions with my Brookhaven Colleagues Vinod Mubayi and David Jhirad, were also very helpful. And the encouragement and support of Robert Nathans, for many years the Director of the EMTP, provided the essential motivation. But the greatest debt is owed to June Martino and Pat Miller, who prepared the manuscript. Without their humor, patience, and dedication through suc cessive drafts, this Monograph could not have been brought to a conclusion. Finally, the writer also acknowledges the support of the Office of Energy, United States Agency for International Development, which provides the financial sponsorship of the Energy Management Training Program. IV TABLE OF CONTENTS 1 Introduction .....................•.............................•...• 1 1.1 What is Energy Systems Analysis •••••••••••••••••••••••••••••••• 1 1.2 Applicability of Energy Systems Analysis to Developing Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . . . • . . . . . . . . . . . . . . 4 1.3 A Framework for National Energy Planning....................... 6 1 .4 Scope of This Book............................................. 17 2 Mathematical Fundamentals ••••••••••••••••••••••••••••••••••••••••••• 19 2.1 Matrix Algebra................................................. 19 2.2 Econometrics. . . . . . . . • • • • • • . . • . . . • • . • . • • . • . • . . . . . . . • • . . . . . . . • . • • 24 2.3 Linear Programming............................................. 40 2.4 Classical Optimization Techniques •••••••••••••••••••••••••••••• 47 2.5 Statistical Analysis of Energy Data: Oil Consumption in Tunisia........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3 Network Models. • • . • . . . . . . . . • • • • • • . • . . . • . • . • . . . . . . . . . . . . . . . . . . . . . . . • • 61 3.1 Reference Energy Systems ••••••••••••••••••••••••••••••••••••••• 61 3.2 Energy Demand and Fuel Mix Analysis............................ 69 3.3 Matrix Algebraic Formulation: Application to the Dominican Republic ....•...•••.•....•..•....•..•.•.•.•.•.••••.. 72 It 3.4 Matrix Notation for Fuel Mix Tables; Residential Demand in the Dominican Republic •••••••••••••••••••••••••••••••••••••• 81 4 Econometric Models .......••...•..••.•...•••......•..•.•.••.•.••••..• 113 4.1 Estimating Elasticities •••••••••••••••••••••••••••••••••••••••• 115 4.2 Es timation Problems............................................ 118 4.3 Application: Income and Price Elasticity of Energy Demand in Tunisia............................. • • • • • • • • • • • • • • • •• 123 5 Petroleum Sector Models ••••••••••••••••••••••••••••••••••••••••••••• 125 5.1 Technical Background ••••••••••.•...•.••.....•.....••..•..•••••. 125 5.2 A Simple Refinery LP ••••••••••••••••••••••••••••••••••••••••••• 136 5.3 Application to a West African Refinery ••••••••••••••••••••••••• 139 5.4 Application: Refinery Rehabilitation in Bangladesh •••••••••••• 155 6 Input-Output Models................................................. 167 6.1 Fundamentals of Input-Output Analysis •••••••••••••••••••••••••• 167 6.2 Energy Denominated I/O Tables •••••••••••••••••••••••••••••••••• 177 6.3 RES-Transaction Table Relationships •••••••••••••••••••••••••••• 183 6.4 Interfue1 Substitutions in the I/O Framework ••••••••••••••••••• 188 6.5 An Energy Input-Output Model for Portugal •••••••••••••••••••••• 191 7 Industrial Process Models ••••••••••••••••••••••••••••••••••••••••••• 205 7.1 Introduction ••••••••••••••••••••••••••••••••••••••••••••••••••• 205 7.2 A Process Model of the Egyptian Iron and Steel Industry •••••••• 211 7.2.1 Introduction •••••••••••••••••••••••••••••••••••••••••••• 211 7.2.2 Options for the Egyptian Iron & Steel Industry •••••••••• 211 7.2.3 Formulation as a Linear Program ••••••••••••••••••••••••• 222 v TABLE OF CONTENTS (continued) 8 Electric Sector Models •••••••••••••••••••••••••••••••••••••••••••••• 231 8.1 Introduction ....................•.............................. 231 8.2 The Capacity Expansion Problem ••••••••••••••••••••.•••••••••••• 232 8.3 Adding a Spatial Dimension: The Siting Problem •••••••••••••••• 241 8.4 The Treatment of Electric Transmission in Spatial Program.m.ing Models ••••••••••••.•.•••••••••••••••••••••.••••.••• 257 8.5 Incorporating Water Resource Planning Considerations ••••••••••• 265 8.6 Environmental Considerations ••••••••••••••••••••••••••••••.•••• 272 8.7 An LP of the Jordanian Electric System ••••••••••••••••••••••••• 275 9 Energy System Optlmizat~on Models .••••••••••••••..••••••••••••.••••• 293 9.1 The Basic Linear Programming Model ••••••••••••••••••••••••••••• 293 9.2 Capacity Variables ••..••••••••..••••••••••••..••••••••••••••••. 298 9.3 Interpretation of the Shadow Prices •••••••••••••••••••••••••••• 302 10 Simulation Models .....••.•....•.....•••.........••.................• 307 10.1 Introduction................................................... 307 10.2 An Energy Cash Flow Simulation Model ••••••••••••••••••••••••••• 310 11 Energy Economic Linkages .••..•.......•••.........•..............•.•• 329 11.1 Linking the I/O and LP ••••••••••••••••••••••••••••••••••••••••• 331 11.2 Process Model Linkages •...•.•.........••.•......•••••.......... 331 11.3 Macroeconomic Linkages ..•....••.........••..•...........•...••• 335 Bi bliography .....••..•.•...•.•..•••...•.••••••....•....•..••••...••. 339 VI 1 INTRODUCTION 1.1 WHAT IS ENERGY SYSTEMS ANALYSIS? Energy systems analysis is a young field, with no long history of aca- demic scholarship. Indeed, it is not even clear that energy planning and policy analysis itself has much recognition as an academic discipline, and the body of such knowledge as might be termed energy planning remains ill de fined. Moreover, the body of knowledge that is germane to the unique prob lems of the third world is extremely fragmented, much of it not generally available in the places where lessons learned in one country could be use fully applied in another. Debates about the legitimacy of new fields of study, especially in cases that cross the traditional academic delineations, are of course not new. The debate over what is geography has occupied the pages of learned journals for decades; the evolution of comprehensive land use planning in the 1950's and 1960's, and environmental engineering in the 1960's and 1970's, faced similar definitional problems. These debates were not entirely semantic, since their resolution had a great deal to do with where and how such fields were taught in universities, and the directions of research that followed. Moreover, particularly in reference to the third world, there are those who view energy planning as a simple extension of economic development planning. Others would stress the scientific and engineering basis. However, there appears to be evolving a broad consensus among both educators and practioners that energy planning for developing countries is indeed a discipline in its own right, that cannot simply be viewed as an extension of traditional develop ment planning. The essence of energy planning, as opposed to the more traditional sec toral planning activities--electric sector planning, refinery and petroleum sector planning, or industrial development planning--lies in the compre hensiveness of analysis; in the understanding of inter-fuel substitution (rather than just identifying the most effective delivery system for a single fuel); in the understanding of the interaction of energy with economic development (rather than energy needs merely emerging from a sectoral development plan); and in the understanding of the competition of energy sector investment needs with non-energy sector investment needs (rather than the traditional isolation in which the capital intensive electric sector defined its expansion program). Energy systems analysis, then, is simply the quantitative treatment of such problems;l its relationship to energy planning is analogous to, say, the position of environmental systems analysis to environmental planning. It rests on the integration of a number of traditional disciplines economics, engineering, mathematics into a coherent analytical framework that stresses the interaction of the different compocomponents of the system.2 lActually the original use of the term systems analysis did not necessarily imply quantitative, mathematical treatment of the system under study: some of the classic texts contain not a single equation. Sys tems analysis was meant simply as a way of approaching complex problems, emphasising compre hensive rather than partial analysis. In general, however, systems analysis has come to imply the use of formal mathematical techniques, and it is in this sense that we shall use the term here. 2The definitional difficulties here are typified by the National Research Council Report, "Systems Analysis and Operations Research: A Tool for Policy and Program Planning for Developing Countires," Commission on International Relations National Academy of Sciences, Washington, D.C., which defines applied sys tems analysis in the following terms: "Applied Systems Analysis is not merely a technique or group of techniques such as probability theory or mathematical problems; rather it can be thought of as a broad research strategy one that involves the use of techniques, concepts, and a scientific, systematic approach to the solution of complex problems. It is a framework of thought designed to help decision makers choose a desirable (or in some cases a "best") course of action," (p. 65). Systems analysis, then, is not easy to define in a few words. 2 Digression 1.1: The Necessity for Judgement. Some of the more egregious failures of energy systems modelling are to be attributed less to the shortcomings of the models themselves as much as the mode in which they are used, and the fail ure to appreciate the necessity for judgement In the assumptions that are used to drive the scenarios. An excellent example is the assumption made for world 011 prices in the 1979 Annual Report to Congress by the Energy Information Administration of the U.S. Department of Energy. The figure below shows the world 011 price trajectory used as a basis for this study. To be sure, this was prepared in October 1978, prior to the events In I ran that sparked the price Increases in 1979. But the report, appearing In mid 1979, was widely criticized; and the models used in its preparations castigated for fai ling to "predict" the price increases. Of course It was not a fal lure of model prediction at a", since the world 011 price was a matter of exogenous assumption; rather It was a failure of jUdgement or, perhaps less charitably, an unwl I lingness to go against the conventional wisdom at the time, which held that since 011 prices had stayed constant In real terms over the Interval 75 - 78, it would be some years until prices again rose I n rea I terms. Past and Projected Price of Arabian Light Crude Oil 1960-2000 30r-------------------------------------------~ e.. .. e<nII 20 aCD. f .!!! "0 Q .c.o.. .e.n.. 1: <II 10 iii c 0 0 ____ O~--~----~----~----~----L---~ _L_ ___~ 1960 1970 1980 1990 2000 Year 3

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