Modelling Economic Effects of the Renewable Energy Expansion

1
Modelling Economic Effects of the Renewable
Energy Expansion The German Case

• Funded by the Federal Ministry for the
  Environment, Nature Conservation and Nuclear
  Safety (FKZ 0327652)
• Jürgen Blazejczak, Frauke Braun, Dietmar Edler,
  Wolf-Peter Schill
• DIW Berlin
• 34th IAEE International Conference
• Stockholm, June 20, 2011

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Outline

• Introduction
• Renewables in Germany
• Research questions
• The model
• Core model (NiGEM)
• RES-specific extension (SEEEM)
• Model application
• Two scenarios
• Macroeconomic and sectoral results
• Conclusions

3
Outline

• Introduction
• Renewables in Germany
• Research questions
• The model
• Core model (NiGEM)
• RES-specific extension (SEEEM)
• Model application
• Two scenarios
• Macroeconomic and sectoral results
• Conclusions

4
Renewables in Germany
(BMU, 2011)
(BMU, 2011 and own calculations)

• Substantial growth in
• Renewable shares of energy consumption
• Investments and turnover in renewable industries
• Employment in renewable industries

5
Motivation and research questions

• Positive economic impacts
• Investment and jobs in renewable industries
• Exports of RES technologies, diminished imports
• Negative impacts
• Additional costs compared to conventional energy
  supply
• Substituted conventional investments
• Research questions
• Economic net effects of renewable energy
  expansion in Germany?
• Sectoral implications?

-
?
6
Outline

• Introduction
• Renewables in Germany
• Research questions
• The model
• Core model (NiGEM)
• RES-specific extension (SEEEM)
• Model application
• Two scenarios
• Macroeconomic and sectoral results
• Conclusions

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Modelling strategy

• Demand for RES facilities, maintenance, biomass
• Exports of facilities and components
• Diminished imports of fossil fuels
• Diminished conventional investments
• Additional costs

Exogenous impulses

• Monetary and fiscal policy
• Exchange rates
• Expectations of economic agents

• Investment effects
• Substitution effects
• Trade effects
• Budget effects
• Endogenous dynamic effects

Interrelated mechanisms
Assumptions and conditions
The model
Macroeconomic and sectoral effects

• Economic growth
• Income and consumption
• Employment
• Macroeconomic and sectoral dimensions

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Core model (NiGEM)

• Strategy Extension of NiGEM model
• Developed by the National Institute of Economic
  and Social Research
• Well-established econometric model of the world
  economy
• Multi-country model with gt 5000 variables
• Empirically estimated behavioural equations
• Forward-looking expectations of agents (exchange
  rates, prices, wages)

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NiGEM a multi-country model
U.S.
Germany
UK

• Interrelations
• World trade
• Capital flows

Japan
other OECD countries
LatinAmerica
other world regions
OPEC-Countries
9
10
Sectoral and RES-specific extensions (SEEEM)
170 macro variables
Final demand
NiGEM Germany
3000 sectoral variables

• Domestic production only

Transfer modulefor final demand
Input-Output module
Standard industry structure (71 sectors)
Renewable energy industries (14 sectors)
Sectoral gross value added ? Employment
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Modelling of renewable sectors

• Seven renewable technologies
• Wind
• Photovoltaic
• Solar thermal
• Hydro power
• Biomass
• Biogas
• Geothermal
• Two sectors for each technology
• Production of facilities
• Operation and maintenance of facilities
• ? 14 additional sectors in Input-Output
  structure

Renewable energy industries (14 sectors)
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Outline

• Introduction
• Renewables in Germany
• Research questions
• The model
• Core model (NiGEM)
• RES-specific extension (SEEEM)
• Model application
• Two scenarios
• Macroeconomic and sectoral results
• Conclusions

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Two Scenarios

• Renewable expansion scenario for Germany (EXP)
• Reflects official Lead Study 2009 (BMU)
• Projection of RES exports
• Counterfactual NULL scenario
• No renewable expansion in Germany
• No RES exports
• Sensitivity analyses
• Decreasing competitiveness
• Flexible labour market
• Scope of analysis 2000-2030
• Historic data for RES expansion and exports until
  2008

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Scenario inputs economic impulses
Expansion scenario 2000-2030 Real prices (2000),
billion Euro
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Macroeconomic results
Differences EXP-NULL in
2010 2020 2030
GDP 1.7 2.6 2.9
Private consumption 1.0 2.3 3.5
Private investments 9.1 8.9 6.7
Exports 0.9 1.2 0.9
Imports 1.0 1.0 1.0
Productivity 1.7 2.6 2.9
Employment 0.1 0.0 0.0
Employment (1000 persons) 22 15 3
? Increase of GDP and productivity
? Small (positive) net employment effects
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Sensitivity analysis Decreasing competitiveness
Differences to NULL in
? Increased unit costs decrease international
competitiveness of German economy
? Lower exports, higher imports, slower GDP growth
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Sensitivity analysis Flexible labour market
Differences to NULL in
? Econometric model equations imply high natural
unemployment (instead, strong productivity growth)
? More flexible labour market GDP growth leads
to increased employment
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An exemplary sectoral outcome
? Manufacturing industry is the main winner
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Outline

• Introduction
• Renewables in Germany
• Research questions
• The model
• Core model (NiGEM)
• RES-specific extension (SEEEM)
• Model application
• Two scenarios
• Macroeconomic and sectoral results
• Conclusions

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Conclusions

• Development and application of a flexible
  economic model
• Case study German RES expansion has positive net
  effects on economic growth
• Net employment effects tend to be small, but
  positive depend on labour market conditions
• Identification of winning and losing sectors
• Model could be further expanded to cover energy
  efficiency measures, electric vehicles etc.

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Backup
22
Development of shares of imported intermediates
at gross production in EXP
40
Manufacturing industry
35
30
25
Total
20
15
Agriculture, Forestry, Fishery
10
Building sector
5
Services
0
2010
2020
2030
23
Moderate export success
Differences to NULL in
GDP
Productivity
Employment
? Slightly lower GDP growth
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Core model (NiGEM)

• Strategy Extension of National Institutes NiGEM
  model
• Well-established econometric model of the world
  economy
• Multi-country model with gt 5000 variables
• Empirically estimated behavioural equations
• Error-correction specification ? long-term
  equilibria
• Forward-looking expectations of agents (exchange
  rates, prices, wages)
• Causal relationships modelled
• Multiplier effect and accelerator effect
• Price-wage mechanism
• Adjustments of exchange rates, balance of payments