The two economics work packages proposed are best considered to be one body of work that was initially split due to the limitations of the core and tensioned funding areas during bid preparation. Although separately identified, these areas of work will be pursued in tandem due to the nature and extent of the synergies and interdependencies, which we outline below.
At a macro level, the operation of MEC's has to be considered against the competitive electricity market that currently operates in the UK, and the social, policy, regulatory and environmental factors that inform the market and are affected by it. The key concern is the compatibility of competitive markets (and lower electricity prices) with the attraction of investment and encouragement of energy efficiency that will be required to meet the objectives of sustainable development.
The market environment for MECs is strongly influenced by support frameworks and incentives, policy targets and exogenous shocks to both demand and supply. The interplay of these different factors will determine the dynamically changing shape of the market, the entry price that must be met by a technology and the corresponding social, regulatory and environmental consequences that will be seen at differing levels of marine renewable penetration.
The combination of the lifetime economics work and the computable general equilibrium (CGE) model will provide a means of testing the entry costs of different device topologies against the future entry price of the market under a range of scenarios. Initially, the scenarios can include such considerations as aggressive capital cost reductions, increases in capital grants support, guaranteed (higher) market support levels, and their associated impacts on social, regulatory and environmental factors (in the UK as a whole and its member countries) under different scenarios through tracking individual and composite economic/environmental/social (income-distributional) indicators.
The linkage of policies to indicators and goals through the two work areas must form the basis of a move towards integrative appraisal of energy systems and policies, as it is not enough to simply observe the direction of change of indicators, the rate and extent of response is needed as without this it is difficult to forecast how policy can be appropriately formulated and implemented.
From scenario assumptions, the CGE model can be used to provide a target capital cost reduction that must be achieved in order to deliver a viable MEC market under the assumed conditions. The lifetime economic work can then be used to iterate how design choices can achieve greater economic performance in order to achieve this aim for each major scenario.
The influence of policy, and the weights attached to policy goals could, naturally, vary across decision-making agencies (where delegation or devolution exists). The regional structure of the CGE model captures this important dimension of policy, and from an established base allows the exploration of policy evaluation issues under current and hypothetical modes of governance.
- To develop an interregional Social Accounting Matrix for the UK that disaggregates energy inputs by fuel use and into renewable and non-renewables. Within renewables we would separate out wave and tidal energy sources. The unique database would be use to provide a description (using standard IO and SAM techniques) of forward and backward linkages of each of the energy sectors.
- To develop and test an interregional CGE model of England, Scotland, Wales and Northern Ireland, which is appropriately disaggregated in terms of its treatment of renewable and non-renewable energy inputs.
- To use the interregional modelling framework for extensive simulation of the economic, environmental and social impacts of policy and non-policy disturbances. For example, we would simulate the impact of the Renewables Obligation and of the Climate Change Levy (and exemptions). The model contains numerous exogenous variables any one of which could be shocked. Furthermore, we could, for example, through hypothetical extraction, explore the impact of the closure of British Energy. The impact of the marine technologies would be simulated under various scenarios.
WP12 has developed a number of regional, national and interregional Input-Output and Social Accounting Matrix databases for the four regions of the UK (England, Northern Ireland, Wales and Scotland) and established the regional linkages of different electricity generation technologies in the UK. These databases use a novel disaggregation of the electricity sector as compared to its conventional treatment in economic accounts. Uniquely, they separately identify both generation and non-generation activities, and disaggregate generation activities by type of generation technology.
These extended databases have been used in the application of a number of linkage and attribution studies, using various "fix-price" methodologies of energy issues at both the national and regional level in the UK. This work has examined the backward and forward linkages of marine and other electricity generation technologies. It has also examined the consequences of major changes in the structure of electricity generation on the regional and national economy through a number of "hypothetical extraction" techniques (applied, for example, to the projected closure of nuclear facilities).
WP12 has developed and tested both UK and regional energy-economy-environment CGE models that incorporate separate treatment of renewable and non-renewable energy inputs. These models are calibrated on a subset of the databases generated by this work. CGE analysis has become the most widely adopted modelling approach to addressing the energy-economy-environment nexus, and the work in WP12 is unique in applying these models to the question of new marine renewable technologies for the production of electricity in the UK. With WP7 this study has examined the likely macroeconomic and environmental impacts of the expenditures associated with the development of such a sector in Scotland and the UK.
The results of this work are the first systematic attempt to quantify the potential importance for regional and national economic development of the emergence of an industry based on marine renewable energy.