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Long-term economic impacts of energy development scenarios: The role of domestic electricity generation

Lekavičius, Vidas, Galinis, Arvydas, Miškinis, Vaclovas
Applied energy 2019 v.253 pp. 113527
clean energy, decision making, economic impact, electricity, electricity generation, employment, financial economics, gross domestic product, imports, international cooperation, markets, models, prices, trade balance, Lithuania
The development of domestic energy generation is often expected to provide benefits to the economy through, for example, improved energy trade balance and jobs created. However, the economic impacts of energy development scenarios are not limited to the energy sector, and the decision makers must consider the impacts on the entire economy. In this paper, we analyse the full impacts of increased domestic electricity generation in a computable general equilibrium (CGE) framework. Realistic energy development scenarios are modelled using the MESSAGE energy system model and considered to be exogenously described energy pathways that generate responses from the remaining economy. These technically and economically consistent energy scenarios are incorporated into the computable general equilibrium model through the creation of fixed, variable, and investment cost structures for the energy forms considered. Model application in Lithuanian case revealed the interchangeable character of electricity imports and local generation based on a relatively significant share of imported resources. Depending on electricity market conditions, scenarios with higher domestic electricity generation levels might fail to provide substantial economic benefits: although increasing electricity import prices would create preconditions to increase domestic electricity production and turn Lithuania to the net electricity exporter, gross domestic product (GDP) might decrease due to the negative impacts on other economic activities. International cooperation for least-cost clean energy supply might be economically beneficial to energy importing countries and increasing domestic electricity generation should not be set as the ultimate goal.