The Simulation & Optimization of Technology to Address Climate Change

GaryHoworth Founder July72009EuroXXIIIBonnGermany

2009 Energy-Redefined. All Rights Reserved. .

5/25/2012

Some Thoughts
Carbon, Technology & Politics are inextricably linked but how do we represent them? No one right model got to be fit for purpose (speed vs accuracy) Models to represent reality but they are not reality !! Evolution of and volatility in prices/markets is an important driver of participant investment behavior
Actors are not homogenous each company will view the world differently Non linear more than one equilibrium

MultitudeofApproachesbutwhichOneShouldweuse?
Models Integration Real options Valuations Portfolio Company behavior Evolution and trade movements behavior Trading Networks Agent based models Coalitions timing and market impact Market forecast State Space System Dynamics Market behavior Cluster analysis Spot prices Market analysis Data Technology/Coalitions

Value chains

Network models

Key Factors but what are they?

5/25/2012

Getting Factor X right !!!

2009 Energy-Redefined. All Rights Reserved.

A Technology & Carbon Model

Oil Price Nat Gas Price Coal Elec Prices Corn Prices Uranium etc Steel Power Oil Chemicals Paper & Pulp .. Emissions Jobs, leakage Cash flows competition etc

GDP Ex Rates Costs Network effects Investments/ Technology Carbon prices Carbon legislation /rules regulations Carbon market Structure

Weather

Politicians

Subsidies/Tax Adequately capture the non lineariities in the macro system

2009 Energy-Redefined. All Rights Reserved.

Company Behavior

5/25/2012

Non Linearity's Everywhere Just One Component

5/25/2012

2009 Energy-Redefined. All Rights Reserved.

Industry and Behaviors affect MACs

Company cash-flow constraint
40

Marginal Abatement Curve Cement 40

Marginal Abatement Curve Cement

20 $/CO2te

20 $/CO2te
0 10 20 30 40

-20

-20

-40 mm Tonnes of CO2 avoided

-40 0 10 20 30 40 mm Tonnes of CO2 avoided

With Power just cementsavings

Lower coal price & lower Clinker %

Carbon Accounting key issue

Long Term Equilibrium. What Supply and Demand

30 25 Pence per Therm 20 15 10 5 0 1 2 3 4 5 Years
1500 1000

Long Term Equil Mean Reversion 1 What Happened Mean Reversion 2

Market in Balance but

6 7 8 9

Supply - Demand (1998 only)

mmscfd

500 0 -500 -1000 BG Power Generators Marketers

Price Volatility +70% -50% Important to model 2009 Energy-Redefined. individual companies Reserved. All Rights positions 5/25/2012

Areas of Focus is Different for Each Company Oil Industry Example

GTL Heavy Oil

Shell

Flaring Type of Development Country LNG

Will affect the way the company invests and the way it trades and ultimately the prices

BP

OtherTechnologies
Conventionaltechnologymainlyaboutcostsandproductionefficiencies FocusofTechnologistsonincrementaltechnologies Buttechnologiesfromoutsidethebusinesscouldhaveagreateffect
Quantum computing Biotech New fuels Carbon conversion CCS Reservoir simulations IGCCs CTL with CCS Syngas Nano Plug in Batteries Hybrids Favoring Nuke New Materials Change in load curve less installed capacity Smart sensors Downhole power Platformless developments Lower demand Ultra deepwater Arctic and other Frontier areas costs EOR Wind Solar New trading algorithms Reservoir optimizations

Conventional Subsea and AUVs

Invest or Wait: The Effect of Network Effects.

SpecificSectorEnergyTechnologyInteractions

Inject funding Size of sphere represents amount of effort/funds Driven by politicians?

WheredoesthatFundingEndUp:

Impacts Technology network

Impacts carbon markets

TechnologicalInteractions
Interactions

Stimulus and funding applied here

Technologies

Under certain conditions stimulus permeates and cascades to here

EvolutionoftheNetworkofCoalitionofInterests Politics
National governments U.S. state governments Companies and individuals Organizations

10

10

P(k)
10
1

10 0 10

10

10

10

Degree, K

NetworksInteractandChangeduetootherInteractions
Environment eg. Oil prices

Markets/Needs

Technologies

Corporate

Governments/Politics

Institutions/Coalitions

ABM, multi level network with industry and company data

Non Linearity Phase Diagram Regions of Behavior

1
Stability

0.8
Partial Oscillation Oscillation Partial Stability

0.6

Network Coupling 0.4

0.2
Incoherence

0 0

0.2

0.4

0.6

0.8

Coupled Oscillators

Initial Frequency of Oscillations

Different regime characteristics requiring different management and optimization strategies

Conclusions Key Messages

Externalities really important eg Network effects Lots of uncertainty in key data which MAC? Optimizing under uncertainty and multiple goals Company behavior is an important determinant of price evolution. Volatility and market structure greatly affect business decisions and participant behavior ie path and prices Non linearity multiple equilbria In the real world politicians can help or hinder progress. These political networks adapt and evolve.

5/25/2012

2009 Energy-Redefined. All Rights Reserved.

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Thank You gary.howorth@energyredefined.com www.Energy-Redefined.com

5/25/2012

2009 Energy-Redefined. All Rights Reserved. .

17

Abstract
Climate change when coupled with the interaction of politics is an incredibly complex system. Optimization or control of such a system using conventional techniques is difficult and fraught with a myriad of issues. The paper will consider a number of models that the author has explored in Industry to help frame key questions in the current climate debate. This has involved consideration of policy, technology and the modeling of carbon emissions. The author's current approach uses a combination of methods including complexity approaches. Initial results from the model will be presented.

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2009 Energy-Redefined. All Rights Reserved.

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