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Model fundamentals: supply and demand

In this video, Frank Krysiak explains the very first model element – the supply and demand balance – and how to use the model exercises.

When building a model to explore possible futures, it is often useful to start by investigating the constraints that need to be described in such a model. One of the most important constraints of economic models is the fact that we need to produce what we want to consume.

In other words, supply has to equal demand. This is of particular relevance in electricity systems as electricity cannot (yet) be stored easily in large amounts.

Furthermore, there are multiple options how electricity demand can be satisfied ranging from fossil and nuclear power plants to different renewable production technologies like wind and solar. As demand changes over time also the supply could change over time: solar power is not available at night and the production of wind turbines depends on seasons in most countries.

The two sides of the market have to be matched in all possible conditions. Thus, this will be your first task in using a model: design an electricity supply that can cope with different situations. We have designed a model exercise that describes this challenge in the next step.

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Exploring Possible Futures: Modeling in Environmental and Energy Economics

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