Electricity Generation

Electricity Generation Sector

Purpose and Perspective

The purpose of the electricity generation sector is to calculate total electricity production from fossil fuels, nuclear, hydropower and other renewable sources. In this sector, electricity capacity is expanded as expected future demand for electricity grows. The necessary additional capacity to satisfy the growing demand is achieved through construction of additional conventional thermal power plants, nuclear plants, hydropower plants, and other energy generation capacity from renewable sources. The choice on the type of capacity to be constructed depends on the levelized cost of electricity from each source. However, electricity capacity construction choices for the past are exogenous to the model.

Model Structure and Major Assumptions

  • Decision on electricity capacity construction are affected by the estimated levelized cost of electricity [1]

Exogenous Input Variables

  • Electricity capacity cost by source[energy] - Units: Usd/Kw

  • Electricity capacity load factor by source[energy] - Units: Dmnl

  • Fuel price per mbtu[fossil fuel] - Units: Usd/Mbtu

  • Historical electricity generation capacity by source[energy] - Units: Mkw

  • Renewable electricity generation capacity construction time[SOLAR] - Units: Year

  • Renewable electricity generation capacity construction time[HYDRO] - Units: Year

Initialization Variables


Modeling Details

We use the [energy] subscript to differentiate energy generation from coal, gas, oil, hydropower, wind, solar, nuclear, and biomass sources. Further subdivisions, i.e. between large-scale and small-scale hydropower and large-scale and small-scale solar power, are also considered.

Although we use the levelized cost of electricity (LCOE) to drive electricity generation capacity construction, we do not assume that investors have perfect information about the market and correctly anticipate future conditions, towards satisfying a set of optimization conditions. Rather, we assume that investment behavior changes gradually, as LCOE changes, and that the intensity of such change is based on empirical observation.

Footnotes and References

[1] IEA (2014). World Energy Model documentation, 2014 version. International Energy Agency and OECD.