ENERGY Flashcards
Term
Definition
Energy Services
Services in which energy is required to provide even the most basic resources such as food, water, air, or energy itself. Energy is used in every aspect of our economy, society, and prospects for the future, and so understanding the role of energy requires understanding how it links to all of these aspects of the world around us.
Distribution
A complete calculus of the benefits, costs, risks, allocations within a population. Distribution gives us information to help us better determine prospects for our future relationship to welfare and energy would be required in order to understand the welfare impacts of our energy choices. Welfare refers to prosperity and living standards as measured by notion of “utility”.
Energy Intensity (E/GDP)
Energy (E) per unit of GDP. The relationship of how much output can be created with each unit of that energy. Energy Intensity has fallen over the years because we are getting more energy efficient.
Energy Consumption
the amount of physical units of energy used (usually measured in volumes)
Energy Productivity (GDP/E)
The concept of Energy Intensity is closely related to Energy Productivity (GDP/E), which is simply its inverse. It reframes GDP as a function of energy, and it is often used as a measure of comparative productivity across countries.
Systems Thinking
Energy is best understood as a set of interconnected systems, which are collectively referred to as the Energy System. Collectively, the object of analysis becomes these system elements and within them are many parts, sub-systems, and interactions. Such Systems Thinking is a distinct from the traditional marginal analysis that populates much of economics and social sciences.
System Dynamics
An examination of the systems and all its integral parts. It gives us information for how the system behaves and responds to stimuli, etc.
System Structure
the system can be viewed as a collection of components at any given moment in time. These components have natural groupings and relationships and can provide a geographic “map” of the system structure
Transformations
Once the system structure is established, it is useful to understand the transformations within that structure as time passes or elements change. The strength of these relationships and the direction in which they flow can explain dynamic behaviors. Systems are best understood not in how they are, but in how they change.
Non-linearities
Sometimes, dramatic change can occur but only after a while and in a non-linear way. Systems often exhibit the behavior of maintaining themselves until certain thresholds are reached and then system dynamics can radically alter the behavior to a very different mode. Observing and predicting these non-linearities reveals much about the system itself.
Root Cause
When trying to explain the reason that certain observations occur, there are many levels on which that explanation can proceed. Sometimes there is an immediate reason, but that reason is usually motivated by other, deeper relationships in a system. An apt analogy is evaluating the symptoms versus the disease, and uncovering the underlying “root cause” of the observed phenomenon can be enabled using system dynamics.
Supply Chain
This represents all of the energy in the human-industrial system – from total energy inputs to final energy consumption and energy services (outputs) –and is the basis of the energy system analysis. It also includes the physical delivery system (“Infrastructure”) to move and transform the energy from its origin to its final disposition.
Circular vs. Directional Systems
Circular systems, as the macro-economy is often modeled, has many interrelated elements that can exhibit a balance and feedback keeping the various elements in check. It is often difficult to discern the beginning and the end of a circular system process, just like the old chicken and egg problem. In contrast, directional systems tend to have a distinct beginning in a distinct end, usually with very distinct and different inputs and outputs. They start with some inputs and go through a series of transformations resulting in outputs, but the outputs don’t stay in the system or recycle in any significant way.
Innovation
Within the system (Supply, Efficiency (Demand), Cost, or Benefit) there are many incentives and opportunities to try to procure more energy inputs and use them more efficiently to create outputs. Constraints compel people to invention and creativity in trying to create additional advantage for themselves in the form of reduced costs or increase profits.
Depletion
We tend to procure the cheapest and easiest resources first, leaving the more expensive ones for later. Competitors are constantly trying to take away market share, which keeps prices in check. This notion of Depletion (of resources or capacity or value) is a very normal economic behavior whereby we minimize costs first, but that uses up a scarce opportunity that may not necessarily be replaced or renewed.
Sustainability
depletion is making things more difficult and threatening a collapse of wealth and welfare if we damage or exhaust our resource base before we can innovate to another path. The very notion of Sustainability tries to reconcile these issues.
Present Value vs. Future Value
The easiest way to conceptualize the impact of growth rates is to understand how the value of anything today (Present Value) increases by a certain periodic rate (denoted here as compound interest, or i) over a number of periods (time, or t), to determine its value at the end of those periods (Future Value).
Energy
the “living force,” or the internal motion that appears to animate things; the ability to do work; whether kinetic or potential, there is an amount of energy available in the system that can perform the work when properly directed. This is the same energy that is neither created nor destroyed once it is in the system. It is a total volume (or stock) of energy available to do work.
Primary Energy
energy sources available in nature, including Biomass (potential, chemical) - used by animals and humans for food or fuel, Fossil Fuels (potential, chemical) - includes coal, oil, natural gas; a special form of ancient biomass that has been transformed by heat and pressure underground; considered non-renewable due to the vast geoligic timescale over which they are formed, Nuclear (potential, nuclear) - resident in all atoms but difficult to liberate, Hydropower (kinetic, motion), Tidal (Kinetic, motion) - the gravitational pull on oceans creates tidal fluctuations that can be harnessed, Wind (kinetic, motio) - air flow that can be harnessed through mechanical devices, Geothermal (kinetic, thermal) - heat of the earth that can be harnessed passively and actively, Solar (kinetic, electromagnetic) - used in both thermal and electricity generation, Animal (kinetic, motion) - human or non-human; harnessed as kinetic energy. When used as food, they represent potential energy.
Secondary Energy Carriers
energy that is used but not available in primary form in the environement, includes electricity, refined fuels, hydrogen, and other synthetic fuels. Also known as “energy carriers”
Primary Energy Production
Aggregates the primary energy produced by all suppliers; World energy production over the past two centuries shows that aggregate energy use is growing dramatically but has become more diversified across various primary energy sources over time.
Scenario
a term different from forecast, which establisheds a relationship suggesting if the input variables are true, then the output parameters should be what the model suggests
Power
the rate at which energy is physically transformed; power is denominated as an instantaneous rate of transformation of energy
What are the four dimensions of transformation?
- What - changing what form the energy is in
- Where - moving energy from where it is to where people may find it more useful
- When - providing energy when needed and storing it when not
- How Certain - how sure an energy source will be available when desired
First Law of Thermodynamics
suggests that all of the energy that enters a closed system must remain in that system as energy, heat, or work produced.
Second Law of Thermodynamics
explains entropy; suggests that in most of the transformations of one type of energy to another, the heat byproduct is lost, or rendered useless.
Total Final Consumption
The total amount of energy available for consumption net of losses
Final Energy Service
examples: toasted toast, chilled beer, spinning shafts
Resources
all of the energy “out there” in nature, no matter where it is and of what type, is considered our collective energy ________.
Reserve
resources that can be harnessed with existing technology and profitability
6 Types of Captial Inputs in the Overall System
- Physical Capital – engineering and logistics – includes infrastructure and other hard assets that are necessary for procurement, transformation, or disposition of energy as it moves through the supply chain
- Financial Capital – finance and investment – in the form of ownership (equity) and borrowings (debt)
- Intellectual Capital –science and technology – knowledge and technology
- Political Capital – political science, law, and policy – having rules in place to permit or encourage certain transformation, as well as the ability to protect those authorities from interference by others
- Human Capital – labor markets
- Natural Capital – environmental science and natural resources – resources necessary for the complete functions of the energy system (water, land, raw materials)
Intellectual Capital
science and technology – knowledge and technology
physical capital
engineering and logistics – includes infrastructure and other hard assets that are necessary for procurement, transformation, or disposition of energy as it moves through the supply chain
political capital
political science, law, and policy – having rules in place to permit or encourage certain transformation, as well as the ability to protect those authorities from interference by others
natural capital
environmental science and natural resources – resources necessary for the complete functions of the energy system (water, land, raw materials)
The Energy System
All available resource and reserves given the availability of capital and the ongoing potential environmental and economic sinks; starts with resources -> primary energy supply -> intermediate energy supply + losses -> intermediate energy supply + more losses -> total final consumption + even more losses
includes capital and emissions/externalities; the height of the system is bounded by the maximum of the primary energy that enters the system
BE ABLE TO DRAW THIS MAP
stocks
the foundation of any system, you can see, feel, count, or measure at any given time
Flows
stocks change over time through the actions of these
Feedback
the communication mechanism between stocks and flows taking in data about the state of the system and communicating those to other elements of the systems, causing them to react by either maintaining or adjusting their behavior
Feeback loops
the complete cycle of these feedbacks, stocks, and flows that continually update each other. These represent equilibrium or forward moving loops that send information back through the system. o Sustaining Loops o Goal-seeking Loops (thermostat) o Runaway Loops – avalanche o Reinforcing Loops
Stabilizing Loop or Goal-Seeking Loop
One of the two main types of feedback loops observed in systems; exhibits properties of stability or equilibrium where if the system detects stocks are too low or too high, the system increases flow or decreases flow, causing the stocks to rise or lower
Runaway Loops or Reinforcing Loops
One of the two main types of feedback loops observed in systems; cause a system that is out of balance to go further in that direction (ex: avalanche)
Non-linearities
changes in behavior that take a system off its current path (when observing the system in whole)
Dose-response Curve
represents how a cause and effect react to each other
o The systems thinking approach is to ask what kind of change will cause the system at equilibrium to drive to a different equilibrium?
System Purpose
the system’s outcome; Systems are not designed, they emerge from a set of stocks, opportunities to transform those stocks, and behavioral elements that determine how the stocks and flows will change based on the conditions present in the system.
Fungibility
to be fungible, two things must share identical characteristics of what they are, where they are available, when they are available, and the certainty of each of those other characteristics
Benchmark Prices
to ease transactions in formal markets, these are established which always have rules about precisely what, when, where, and how certain the transaction
example: WHAT (nat gas) WHERE (Henry Hub, LA) WHEN (spot price) HOW CERTAIN (firm delivery)
Spot Price
price right now
Costs
all the expenses that a producer has to pay to deliver their good or service end of market; In terms of supply chain dynamic, raw materials incur costs throughout the transformation and processes that they undertake through the supply chain. These costs accrued are delivered to the customer during final consumption
Value
determined by the consumer; consumers are always trying to maximize their bang for their buck
Auctions
the rules by which trade or exchange happens within a market
Clearing Price
In an English Auction, bidders continue to bid until they are no longer willing to go any higher. The winning bid becomes this
What are the main takeaways from Ch2 ?
Energy that enters the system does so as a primary energy source; Energy transforms throughout the supply chain and these transformation determine fungibility; There are several forms of capital inputs that vital for supply chain transformation, and throughout the supply chain energy is lost and creates externalities such as emissions; Stocks and flow exist to either balance the system or transform it into another equilibrium; Economics dominates the system, which is the interactions between buyers and sellers, who exchange via a market
Market Failure
Market failures can present: Problems of internal market structure Problems of external Market Scop Problems of information Problesm of market design introduced government policy and regulation
Perfect Market Behavioral Observations
Price taking: Lots of buyers, people can’t influence price due to lack of market power
Product Homogeneity- Fungibility. Products that share fungibility are perfect subsitutes
Free Entry and Exit- Lack of Market barriers
Natural Monopoly
Industry of service for which it is only economically efficient to have a single provider. The single provide continue to achive improvements through scale, which results in a falling average cost.
Decreasing Cost Industry.
Many energy structures including electricity grid distribution exhibit these characteristics
May have Incentive problem: 1) underserve ;2 ) over charge the market
Needs appropriate regulatory structure
Cartel
Representative of Intentional anticompetitive collusion
ex: OPEC
Monopsony & Olygopsony
Small number of buyers as opposed to sellers
o Utilities may be the only buyer of whole sale generation, and may operate as a monopsony
Monopolistic competition
is a type of imperfect competitionsuch that many producers sell products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes.
Externalities:
Effects are felt outside transaction. Costs or benefits are not internalized into the transaction
(ex: pollution caused by creating a good or service)
Negative or Positive (transfer of knowledge)
Unintended consequences
Unexpected effects on market behavior that result from a law or regulation that is proposed. These are often deleterious, and may give rise to the need for counterbalancing legislation to correct these policy distorions
Public Good:
items that can be produced relatively cheaply, or already exist, but are very difficult
to prevent users from enjoying or participating in, technically referred to an economics as the inability to exclude.
Market Distortive
An economic scenario that occurs when there is an intervention in a given market by a
governing body. The intervention may take the form of price ceilings, price floors or tax subsidies. Market distortions create market failures, which is not an economically ideal situation. (from investopedia)
Uncertainty
Governments can affect uncertainty, which feed back in the costs of capital and expectations, and it is often done in the positive direction ( reducing uncertainty) by the provision of insurance, guaratnees or fixed payment obligations by the government to some stakeholders or market participants
Negative Externalities
Pollution caused in the process of creating a good or service, but for which htat environmental damage is not fully compensated for in the costs that the producer has to bear. Over-absoprtion of resources, pushing off costs to the future, or misallocation of risk to secondary or tertiary parties to a transaction.
Positive Externalities:
Result from activities, including knowledge and invention that is paid for by one person and is freely transferred to others for their benefit. Investmetns that reduce risk for a single participant in a system often create additional risk mitigation benefits elsewhere in the system for which they are not compensated
Informational Assymetries
A situation in which one party in a transaction has more or superior information compared to another.
This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well.
Lack of transparency or cost to obtain necessary info can affect market function
Principal-agents Problems
people who are making decisions are not the ones who will pay the consequences.
The agent has different set of information and many options which to chose, and the principal has difficulty controlling or even monitoring all of the choices made by the agent on their behalf.
Ex: Building contractors, and owners of property/ disassociation between owners of companies (principals) and their managers (agents)
Democracy: elected official (agent), and the people he governs on behalf (principals)
Adverse Selection:
there is a difference of information between buyers and sellers. (“What” of fungibility of a good
being transacted). Seller has more info of the good than the buyer. This makes entering into transactions much more difficult, as both parties expect to be in a disadvantage.
To overcome this problem:
Signaling: sellers make a kind of commitment that binds the sellers or convince buyers that the info is credible
Screening: method to elicit information that reveals the sellers info more credibly.
Moral Hazard:
a party changes behavior after the relationship is established
ex: Building owner who pays energy bill, tenant who uses a lot of energy with no lack incentive to do otherwise.
Method to solve information asymmetries:
contracting, performance monitoring, and alignment of incentives.
The problem is the Agency Costs (the costs of addressing the information gaps)
Non Market Failures (Government) Failures
All the ways that government intervention can diminish the efficiency of the delivery of
goods and services from some otherwise ideal outcome.
Behavioral Economics
study the effects of psychological, social, cognitive, and emotional factors on theeconomic
decisions of individuals and institutions and the consequences for market prices, returns, and the resource allocation.
Temporal Myopia
A form of nearsightedness where things that are up close much clear than things that are far away.
People have high discount rates.
Imputed discount rates
the rate people are implicitly willing to pay by looking at choices that they will make presented in the present and in the future
Market Interventions
business transactions, investments, or other more coordinated attempts by the market to improve its own function.
A form of market intervention is the investment of capital in some part of the supply chain that can facilitate future market transactions. Investments in capacity changes the funciton of the overall energy system by making future energy flows easier and cheaper, while simultaneously signaling to (and modifying the behavior of) other competitive producers.
Policy Interventions
regulation, governments, and establishment of open and fair markets, but can also be direct intervention such
as investment, subsidy, or risk mitigation of various desired outcomes.
tax authority
solves the free-rider problem in public goods, where some people would not choose otherwise to make the
necessary payments to achieve efficient outcomes.
Arguments for government intervention
Governments can force people into risk sharing pools. They are also good at providing information that is uesful in improving market function. They can provide product certification, safety standards, building codes, or licensing regimes that certify that the goods or services being sold meet certain minimum quality standards.
evolutionary dependence
a type of path-dependence where the benefits that someone recieves initially may be thought of as incentives but may evolve into expectations, rights, or endownments that are difficult or costly to remove. Fossil fuel subsidies, farm subsidies, and trade protections are potential examples of this
Cost of Capital
a special form of economic mechanism of system intervention, particularly in the capital intensive energy industry, includes changing the cost of financial capital for market participants
Policy Risk
policies that are subject to change frequently, short-term or anemic interventions, transfers of power, or alterations, nearly always introduce uncertainty in the market and recues the market participants willingness to invest capital until clarity is achieved.
Transmission
Movement of energy to its end use through available wires. The carry high voltage electricity because losses are a function of the current (which is lower at high voltages)
Device
Convertor of energy into energy service
Busbar
The point that a generator connects to the grid (typically at an electric substation) and functions as a conductor of the electricity generated into the grid.
Because of the nature of that transformation, it is a good place to measure the quantity of energy as well as the cost or price – the place where all of the cost of generation are accounted for.
Distribution
After a step dow transformer transforms electricity into lower voltages to be delivered to mid-size customers or transformed to further lower voltages (120V in the US) to commercial and residential facilities
Frequency
Frequency of the oscillations of alternating current (AC) in an electric power grid transmitted from a power plant to the end-user.
Set at the generator
Electricity
Kinetic energy, energy in motion. It must be used while available or stored for later use. If it is not, it will likely not be retrievable afterwards in a useful form for the system. Currently, electricity is very hard, if not impossible, to store
Best cost-efficient method to convert primary energy in a higher value state
Load
Demand side of electricity, final user
Dispatch
Combination of all of the different technologies used to generate electricity to meet that Load.
Types of load
- Base load
- Intermediate load
- Peak load
Base load
Portion of the load that is always demanded
Intermediate load
Portion of the load that predictably rises from the low point (middle of the night in these locations and seasons) to the high point on a daily basis.
Peak load
Load that occurs when the system is operating near its maximum. It is a load that is requiring the delivery electricity near maximum amount for any time during the year.
Capacity factor
It is the ratio of the actual output of a power plant over a period of time to its potential output if it were possible for it to operate at full nameplate capacity indefinitely
Frequency regulation
Maintaining frequency is vital and have to be kept within very tight tolerance. It requires the use of equipment to both add and reduce the frequency very quickly (sometimes in less than a second).
Spinning reserves
A part of the operating reserves. It corresponds to the generation assets that are required to be available and operating in synchronization to provide very rapid replacement of any unexpectedly lost generation.
Operating reserves
Generating capacity available to the system operator within a short interval of time to meet demand in case a generator goes down or there is another disruption to the supply.
Most power systems are designed so that, under normal conditions, the operating reserve is always at least the capacity of the largest generator plus a fraction of the peak load.
Ancillary services
Short- and long-term planning and systemic reliability services that provides a utility to maintain grid operation
How certain in electricity
Ensure:
- Economic dispatch and market governance
- Planning and regulatory approvals
- Billing and support services
- Obtaining investments and working capital
- Risk management and forward markets
Rate base
Or value of the capital. It represents the aggregate investment made by utilities less any accumulated depreciation previously expensed against those assets
Stranded cost
Cost of investing in certain assets that are no longer in use, but they were deemed necessary given the market conditions at the time the investment was decided. The regulator must compensate the utility for these investments
Volumetric charge
It is the portion of the bill that rises with the amount of energy customer uses, and generally is tied to the costs are utility have to incur to provide that energy. There are three types of volumetric charge:
* Bulk pricing: it starts off high and decline with scale
* Tiered rate structure: it starts off low and rise in order to deter higher usage
* Time of use pricing: it rises and falls depending on the hour of the day in order to more closely track
the costs of provision that utility my spare
Utility inefficiency
Is caused by:
- Overcharging of costs
- Incorrect depreciation allowance
- Monopolistic tendencies of under-delivery that increase costs to consumers
- Cross subsidization between regulated and competitive operations
- Lack of cost discipline due to cost recovery
How a utility makes money
Through:
- Increase the amount of assets in the rate base
- Increase the allowed rate of return
- Increase the allowed rate of return
- Hold expenses below certain levels
- Increase revenues beyond the forecasted amount
Goals of grid regulation
The goal is to ensure that:
- Minimizing the system costs passed on to the customer, while providing a fair return for the utility (Cost Minimization)
- Ensuring the highest reasonable degree of service availability for all customers. It includes: i) definition of consumers; ii) rate design; iii) level of service reliability
Vertically integrated utility
All aspects of electricity generation and delivery within a local territory are handled by a single entity or group of integrated entities
Deregulation
It is the process to change the structures regulated utilities. It means to move away from the regulated utility model and to allow for the market-setting of some components of rates in electricity bills, rather than through a regulatory process.
Unbundling
The separation of Distribution functions of utilities from those of Transmission and Generation
Benefits of vertical integration
- Reduced operational and price risk
- Reduced transaction and information costs
- Long-lived, transaction specific assets
Main constraints of the grid
- Physical failure: inability of the grid to deliver energy
* Financial failure
Energy supply risks or constraints
- Resource availability: risk of losing access to primary energy resources at a given time
- Intermittency: A source of energy that is not continuously available due to some factor outside direct control (mainly solar, wind and wave resources)
- Resource predictability: risks that the resources will be consistently available in the future
- Water requirements: some thermal plants require water to operate
Demand side risks
- Load uncertainty
* Changing demand patterns: change in demographics, usage of energy efficient devices, change in economic activitiy
Load
stock; volume of electricity being demanded by the aggregation of all end-consumers; sets a fixed and inelastic demand for this volume of electricity at any given moment
rate-payer
customer
