[Report#:DOE/EIA-0581(2000)]
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The National Energy Modeling System (NEMS) is a computer-based, energy-economy modeling system of U.S. energy markets for the midterm period through 2020. NEMS projects the production, imports, conversion, consumption, and prices of energy, subject to assumptions on macroeconomic and financial factors, world energy markets, resource availability and costs, behavioral and technological choice criteria, cost and performance characteristics of energy technologies, and demographics. NEMS was designed and implemented by the Energy Information Administration (EIA) of the U.S. Department of Energy (DOE). The National Energy Modeling System: An Overview presents an overview of the structure and methodology of NEMS and each of its components. This chapter provides a description of the design and objectives of the system, followed by a chapter on the overall modeling structure and solution algorithm. The remainder of the report summarizes the methodology and scope of the component modules of NEMS. The model descriptions are intended for readers familiar with terminology from economics, operations research, and energy modeling. More detailed model documentation reports for all the NEMS modules are also available from EIA (Appendix, “Bibliography”). Purpose of NEMS NEMS is used by EIA to project the energy, economic, environmental, and security impacts on the United States of alternative energy policies and of different assumptions about energy markets. Projections are made for each year from the present through 2020. The forecast horizon is periodically extended to approximately 20 to 25 years into the future. This time period is one in which technology, demographics, and economic conditions are sufficiently understood in order to represent energy markets with a reasonable degree of confidence. NEMS provides a consistent framework for representing the complex interactions of the U.S. energy system and its response to a wide variety of alternative assumptions and policies or policy initiatives. As an annual model, NEMS can also provide the impacts of transitions to new energy programs and policies. Energy resources and prices, the demand for specific energy services, and other characteristics of energy markets can vary widely across the United States. To address these differences, NEMS is a regional model. The basic regional structure is that of the nine Census divisions; however, the different modules of NEMS represent a variety of regional structures. The regional disaggregation for each module reflects the availability of data and the regions used by other energy analysts in that area, as well as the regions determined to be most useful for policy analysis. Baseline forecasts are developed with NEMS and published annually in the Annual Energy Outlook. In accordance with the requirement that EIA remain policy-neutral, the Annual Energy Outlook projections assume that all existing legislation, regulations, and policies remain unchanged. Analyses are also prepared in response to requests for special studies by the U.S. Congress, the DOE Office of Policy, other offices in DOE, and other government agencies. The first version of NEMS, completed in December 1993, was used to develop the forecasts presented in the Annual Energy Outlook 1994, which extended to 2010. This report describes the version of NEMS used for the Annual Energy Outlook 2000.1 The forecasts produced by NEMS are not considered to be absolute predictions of the future. They are contingent on the key assumptions made about U.S. energy systems. Assumptions include, for example, the estimated size of the economically recoverable resource base of fossil fuels, changes in world energy supply and demand, the rate at which new energy technologies are developed and the rate and extent of their adoption and penetration, and existing or prospective government actions or policies. Analytical Capability NEMS can be used to analyze the effects of existing and proposed government laws and regulations related to energy production and use; the potential impacts of new and advanced energy production, conversion, and consumption technologies; the impacts and costs of carbon emissions reductions, the impacts of increased use of renewable energy sources; the potential savings from increased efficiency of energy use; and the changes in emission levels that are likely to result from such policies as the Clean Air Act Amendments of 1990, regulations on the use of alternative or reformulated fuels, and climate change policy. Specific energy topics that can be, or have been, addressed by NEMS include the following:
In addition to producing the analyses in the Annual Energy Outlook, NEMS is used for one-time analytical reports and papers, such as Electricity Prices in a Competitive Environment: Marginal Cost Pricing of Generation Services and Financial Status of Electric Utilities,2 EIA’s own analysis of electricity industry restructuring and competitive prices. Other analytical papers on topics of current interest in energy markets are prepared, which either underlie the assumptions and methodology of NEMS or are applications of NEMS to current issues. In the past, some of these papers have been collectively published in Issues in Midterm Analysis and Forecasting, and in the future they will be available at http://www.eia.doe. gov/ oiaf/analysis.html. NEMS has also been used for a number of special analyses at the request of the U.S. Congress, other offices of DOE and other government agencies, who specify the scenarios and assumptions for the analysis. Some recent examples include:
Representations of Energy Market Interactions NEMS is designed to represent the important interactions of supply and demand in U.S. energy markets. In the United States, energy markets are driven primarily by the fundamental economic inter- actions of supply and demand. Government regulations and policies can exert considerable influence, but the majority of decisions affecting fuel prices and consumption patterns, resource allocation, and energy technologies are made by private individuals or companies attempting to optimize their own economic interests. NEMS represents the market behavior of the producers and consumers of energy at a level of detail that is useful for analyzing the implications of technological improvements and policy initiatives. Energy Supply/Conversion/Demand Interactions NEMS is designed as a modular system. Four end-use demand modules represent fuel consumption in the residential, commercial, transportation, and industrial sectors, subject to delivered fuel prices, macroeconomic influences, and technology characteristics. The primary fuel supply and conversion modules compute the levels of domestic production, imports, transportation costs, and fuel prices that are needed to meet domestic and export demands for energy, subject to resource base characteristics, industry infrastructure and technology, and world market conditions. The modules interact to solve for the economic supply and demand balance for each fuel. Because of the modular design, each sector can be represented with the methodology and the level of detail, including regional detail, that is appropriate for that sector. The modularity also facilitates the analysis, maintenance, and testing of the NEMS component modules in the multi-user environment. Domestic Energy System/Economy Interactions The general level of economic activity, represented by gross domestic product, has traditionally been used as a key explanatory variable or driver for projections of energy consumption at the sectoral and regional levels. In turn, energy prices and other energy system activities influence economic growth and activity. NEMS captures this feedback between the domestic economy and the energy system. Thus, changes in energy prices affect the key macroeconomic variables—such as gross domestic product, disposable personal income, industrial output, housing starts, employment, and interest rates—that drive energy consumption and capacity expansion decisions. Domestic/World Energy Market Interactions World oil prices play a key role in domestic energy supply and demand decision making, and oil price assumptions are a typical starting point for energy system projections. The level of oil production and consumption in the U.S. energy system also has a significant influence on world oil markets and prices. In NEMS, an international energy module represents world oil production and demand, as well as the interactions between the domestic and world oil markets, and this module calculates the average world crude oil price and the supply of specific crude oils and petroleum products. As a result, domestic and world oil market projections are internally consistent. Imports and exports of natural gas, electricity, and coal—which are less influenced by volatile world conditions—are represented in the individual fuel supply modules. Economic Decision making Over Time The production and consumption of energy products today are influenced by past investment decisions to develop energy resources and acquire energy-using capital stock. Similarly, the production and consumption of energy in a future time period will be influenced by decisions made today and in the past. Current investment decisions depend on expectations about future markets. For example, expectations of rising energy prices in the future increase the likelihood of current decisions to invest in more energy-efficient technologies or alternative energy sources. A variety of assumptions about planning horizons, the formation of expectations about the future, and the role of those expectations in economic decision making are applied within the individual NEMS modules. Technology Representation A key feature of NEMS is the representation of technology and technology improvement over time. Five of the sectors—residential, commercial, transportation, electricity generation, and refining—include explicit treatment of individual technologies and their characteristics, such as initial cost, operating cost, date of availability, efficiency, and other characteristics specific to the sector. In addition, for new generating technologies, the electricity sector accounts for technological optimism in the capital costs of first-of-a-kind plants and for a decline in the costs as experience with the technologies is gained both domestically and internationally. In each of these sectors, equipment choices are made for individual technologies as new equipment is needed to meet growing demand for energy services or to replace retired equipment. In the other sectors—industrial, oil and gas supply, and coal supply—the treatment of technologies is more limited due to limitations on the availability of data on individual technologies. In the industrial sector, technology in the energy-intensive industries is represented by technology bundles, with technology possibility curves representing efficiency improvement over time. In the oil and gas supply sector, technological progress is represented by trend-based improvement in finding rates, success rates, and costs. Productivity improvements over time represent technological progress in coal production. External Availability In accordance with EIA requirements, NEMS is fully documented and archived. EIA has been running NEMS on three EIA RS/6000 workstations under the AIX Version 4.2 operating system. The archive file provides the source language, input files, and output files to replicate the Annual Energy Outlook runs on an identically equipped computer; however, it does not include proprietary mathematical libraries from an external vendor. Following the Annual Energy Outlook 2000, EIA is transferring NEMS to a new computing platform using networked personnel computers and servers, running the Microsoft Windows NT operating system and the Compaq Visual Fortran compiler. The new computer system will be used for the Annual Energy Outlook 2001. NEMS, or portions of it, is installed at the National Renewable Energy Laboratory, the Lawrence Berkeley National Laboratory, other national laboratories, the Electric Power Research Institute, and several private consulting firms. |
