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Energy Systems and Technologies for the Coming Century ...

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4.2 PricesFor a data set that happens to give <strong>the</strong> same solution <strong>for</strong> Balbase2 <strong>and</strong> Balbase4 <strong>the</strong>objective value will be <strong>the</strong> same (in case of no discounting in Balbase4). This couldimply that marginal costs (some of which are interpreted as electricity prices) would alsobe identical. However, <strong>the</strong> situation is more complex, because although all input data areidentical, <strong>and</strong> all optimal (primal) values are identical this does not suffice to make allinterpretations (including marginal costs or dual variables) identical. Suffice here tomention that <strong>the</strong> electricity <strong>and</strong>/or heat prices will often get higher in model Balbase4than in model Balbase2 in <strong>the</strong> time segments that motivate investments, while averageprices will often be at <strong>the</strong> same level.5 Discussion <strong>and</strong> ConclusionsOne would intuitively think that model Balbase4 (without rolling horizon) would be"better" model Balbase2. The reason is that Balbase4 includes all of model Balbase2 <strong>and</strong><strong>the</strong>n some more. The additional component is a better look-ahead mechanism <strong>for</strong>investment decisions.The only look-ahead mechanism of Balbase2 is <strong>the</strong> annuity aspect related to investments.If <strong>the</strong> future is similar to <strong>the</strong> present, this will probably be a fair representation, but if <strong>the</strong>future is different (e.g. very different fuel prices or environmental requirements), <strong>the</strong>n<strong>the</strong>re may be Balbase2 investments now that will appear unfavorable in <strong>the</strong> light of laterdevelopment. In this respect Balbase4 is "better", since it knows <strong>the</strong> future.For <strong>the</strong>se reasons Balbase4 would be preferred to Balbase2, except if <strong>the</strong> model is verylarge as commented above. For <strong>the</strong> Balbase4 model <strong>the</strong>re seems to be no reason to applya rolling horizon approach (again, except if <strong>the</strong> model is prohibitively large), since arolling horizon can not be "better" than one full horizon Balbase4 model.A main common characteristic <strong>for</strong> <strong>the</strong> Balbase2 <strong>and</strong> Balbase4 approaches is that <strong>the</strong>y areusing deterministic models, implying in particular that <strong>the</strong> future is known with certainty.This is obviouly not <strong>the</strong> case in reality. Usually in such models this situation is h<strong>and</strong>ledby calculating solutions under various assumptions concerning <strong>the</strong> future (i.e., variousscenarios). The advantage of such scenario approach is that interpretation of <strong>the</strong> resultsare fairly straight <strong>for</strong>ward. – Alternatively a stochastic modeling appraoch may be taken.It should be noted, though, that it is not necessarily always possible or relevant (due toassumptions of existence of relevant data on probability distributions). When possible,such models provides on <strong>the</strong> positive side additional in<strong>for</strong>mation, while on <strong>the</strong> negativeside <strong>the</strong> interpretations of results are less easy, <strong>and</strong> <strong>the</strong> calculation burden is usuallyheavy.In balance, <strong>the</strong> presented approach towards dynamic investment analysis seemsattractive. The model has been coded <strong>for</strong> <strong>the</strong> Balmorel model, where it will becomereadily available.6 ReferencesH. Ravn et al., Balmorel: A Model <strong>for</strong> Analyses of <strong>the</strong> Electricity <strong>and</strong> CHP Markets,2001, available at www.balmorel.comJohn V. Leahy, Investment in Competitive Equilibrium: The Optimality of MyopicBehaviour, The Quarterly Journal of Economics (1993) 108 (4): 1105-1133.Jesper Felstedt <strong>and</strong> Morten Middelboe Pedersen, Modellering af Investeringer iElsektoren, Master Thesis at IMM, Technical University of Denmark, 2005.Risø International <strong>Energy</strong> Conference 2011 Proceedings Page 155

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