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Resolving Mismatches inEnergy Decision Making
International Atomic Energy AgencyScientific Forum at the General Conference 200915-16 September 2009
Richard R. CirilloDirector, Decision and Information Sciences DivisionArgonne National LaboratoryArgonne, IL 60439USAphone: 630-252-5629email: [email protected]
mailto:[email protected]
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Energy Decision Makers Are Regularly Confronted With Complex and Difficult Choices
• Energy policies• Energy projects• Supply technologies• End use technologies• Energy efficiency• Environmental protection• Energy security• International agreements
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Energy Decisions Are Difficult
• The energy system is:– Complex– Dynamic– Uncertain
• Energy decisions have:– Significant implications– Long lead times– Long lasting effects
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It is important to understand how decisions are made and how they can be made more effectively
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Energy Decision Makers Rely on Information Provided by Energy Analysts
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Good analysis can help in making good decisions
Output
Input
Output
Input
Trend Analysis
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Optimization Equilibrium Analysis
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Good Analysis and Good Decisions Need to Recognize “Bounded Rationality”
• Decision Makers, no matter how smart or well-intentioned, are forced to make choices with:– Limited, incomplete, sometimes unreliable information– Limited ability to process large amounts of information– Limited time to make a choice
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(a) Herbert SimonNobel Prize in Economics
• Decision Makers, in general, are not “optimizers” but rather “satisficers”(a). Their decisions are:
– Suboptimal– Satisfactory or “good enough”
• The ability to adapt and adjust is an important part of good decision making
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Look Back
Good Decisions Need to Be Built on Good Data and Analysis
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Look Sideways
Look Ahead
Energy Decision Makers
DECISION
Learn from past experience
Anticipate the future
Take a systems view
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DECISION MAKING EXAMPLE: U.S. Natural-Gas-Fired Power Plant Construction Had a Substantial Peak, Then It Leveled Off
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1990 1995 2000 2005 2010
Capacity Additions
(GW)
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Factors That Affected Decisions in the 1999/2000 Period
• Looking Back– Increasing load– Limited capacity additions– Declining capacity reserve
margins– Low natural gas prices
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0100200300400500600700 Capacity
Reserve Margin
(%)
Summer Peak Load (GW)
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8Natural Gas Price
(US$/1000 cu ft)
• Looking Ahead– Short construction time for
natural gas units– Rapid payback on
investment– Electricity deregulation
beginning
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Some Things Were Not ForeseenIncreased Demand Caused Natural Gas Prices to Rise
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Natural Gas Price(US$/
1000 cu ft)
Many units were idled for a number of years
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DECISION MAKING EXAMPLE: Reduce Transportation Oil Demand and CO2 Emissions
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1980 1990 2000 2010
Gasoline Consumption (106 bbl/day)
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Looking Back
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1980 1990 2000 2010
Gasoline Price
(constant 2000 US$
per gallon)
• Low gasoline prices
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1980 1985 1990 1995 2000 2005 2010
Vehicle Miles Travelled (1012)
Registered Vehicles (106)
• Increased driving
0%
20%
40%
60%
80%
100%
1980 1985 1990 1995 2000 2005
• Vehicle mix changes
New Vehicle Sales
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Option: Set Efficiency Standards – The Impact Is Affected by Vehicle Mix and Turnover Rates
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1980 1985 1990 1995 2000 2005 2010
Vehicle Efficiency (miles per
gallon)
New Car Standards
New Light Truck Standards
Actual Fleet Average
Note: New vehicle standards are to be set at 35 mpg by 2020
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Option: Develop Alternative Fuels – Ethanol Production Capacity Has Been Growing Rapidly
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1999 2001 2003 2005 2007 2009
Ethanol Production
Capacity(billion gallonsper year)
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Look Sideways: Corn Is Part of a Larger System That Affects Demand and Price
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Animal Feed
Food
Export
Ethanol
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Higher Corn Prices, Lower Oil Prices Have Led toIdled Capacity, Bankruptcies
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1999 2001 2003 2005 2007 2009
Ethanol Production
Capacity(billion gallonsper year)
Idled Production
Capacity
Research is underway on cellulosic ethanol production, which does not use corn
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Option: Develop Advanced Vehicle Technology – Plug-In Hybrids Electric Vehicles Are Gaining Attention
• Range of 40 miles (67 km) on a single battery charge• Range with battery and gasoline engine is 300 miles (484 km)• Planned availability in 2010• Cost – not yet determined• Announced efficiency – equivalent of 230 miles per gallon
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© GeneralMotors
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Look Sideways: Plug-In Hybrid Electric Vehicles Will Affect the Power Grid and Electricity Prices
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Plug-In Hybrid Electric Vehicles could:• Level the night-time load• Increase daytime peak loads• Raise prices• Raise or lower CO2 emissions
Hourly electricity prices with plug-in
hybrid vehicles
Source: Argonne National Laboratory
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$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
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$8.00
RetailGasoline
Price(US$/gallon)
Taxes
Pre-tax
Option: Implement Gasoline Taxes
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Source: US Energy Information Agency (August 2009)
Look Sideways: Impact of tax increases on the economy
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DECISION MAKING EXAMPLE: Nuclear Power Plant Construction Had Peaks, Then It Stopped
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Looking Back at Nuclear Power
• Issues affecting expansion decisions– Accidents – Public Opposition– High Capital Cost– Waste Management– Proliferation Concerns
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Three Mile Island Chernobyl
Decisions were made by private utilities not to pursue new nuclear
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Looking Ahead at Nuclear Power
• Short term – issues remain– Financing– Waste management– Proliferation concerns
• Long term – issues foreseen– Profitability– Climate change
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Decisions on the future of nuclear in the U.S have not yet been made
“Exelon on Thursday said its first quarter earnings rose 23 percent, driven by increased output at its nuclear operations and higher rates.” ABC News (April 2009)
“As [the U.S.] Congress debates whether to limit carbon-dioxide emissions … the nuclear-power industry is poised to reap a multibillion-dollar windfall if restrictions take effect.” Wall Street Journal (May 2008)
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Ways To Improve Energy Decision Making
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1. Recognize that the energy system has no simple solutions, only choices.
2. Look Back – Learn from past experience.
3. Look Ahead – Evaluate the future, but don’t be near-sighted.
4. Look Sideways – Treat energy decisions as systems decisions.
“For every complex problem there is a solution that is simple, neat – and wrong.” Henry Louis Mencken, essayist
“Those who refuse to study history are condemned to repeat it.” George Santayana, philosopher
“Prediction is very difficult, especially about the future.” Niels Bohr, physicist
“Every thing affects everything else in one way or another, not always predictably.” John A. Woods, organization consultant
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Ways To Improve Energy Decision Making
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5. Make energy decisions that are adaptable and adjustable.
6. Don’t let the “optimum” get in the way of the “good enough”.
7. Make good decisions using good data and analysis.
“Insanity is doing the same thing over and over again and expecting different results.”Albert Einstein, physicist
“The perfect is the enemy of the good.” Voltaire, philosopher
“It isn’t what we don’t know that gives us trouble, it’s what we know that isn’t so.” Will Rogers, humorist
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Ways To Improve Energy Decision Making
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1. Recognize that the energy system has no simple solutions, only choices.
2. Look Back – Learn from past experience.
3. Look Ahead – Evaluate the future, but don’t be near-sighted or far-sighted.
4. Look Sideways – Treat energy decisions as systems decisions.
5. Make energy decisions that are adaptable and adjustable.
6. Don’t let the “optimum” get in the way of the “good enough”.
7. Make good decisions using good data and analysis.