Energy technologies and energy efficiency in economic modelling

This paper discusses different approaches to incorporating energy technologies and technological development in energy-economic models. Technological development is a very important issue in long-term energy demand projections and in environmental analyses. Different assumptions on technological development are one of the main causes for the very diverging results which have been obtained using bottom-up and top-down models for analysing the costs of greenhouse gas mitigation. One of the objectives for studies comparing model results have been to create comparable model assumptions regarding technological development.
This paper examines the effect on aggregate energy efficiency of using technological models to describe a number of specific technologies and of incorporating these models in an economic model. Different effects from the technology representation are illustrated. Vintage effects through the slow replacement of production capacity is important for the rate of efficiency improvement. Short-term changes in Danish power production are very large due to changing situations in the Nordic hydropower system. The effect of the changing utilisation rates for power capacity in Denmark illustrates the dependence of average efficiencies and productivity on capacity utilisation rates. In the long run regulation induced by environmental policies are also very important for the improvement of aggregate energy efficiency in the energy supply sector. A Danish policy to increase the share of renewable energy and especially wind power will increase the rate of efficiency improvement. A technologically based model in this case indirectly makes the energy efficiency endogenous in the aggregate energy-economy model.