MACC and Energy Budgets
MACC and Energy prices are going up. But by how much will they rise and over what time frame? Uncertainty in energy prices makes decisions on energy supply options and investment in energy efficiency very difficult. Further, traditional investment decision-making tools like NPV, IRR and payback period don’t cope well with uncertain energy prices. Net Balance offers a suite of tools including abatement cost curves and energy budgets at risk to help our clients work through the uncertainties and find robust solutions.
Marginal Abatement Cost Curves (MACC)
Abatement cost curves are a common tool for comparing the estimated cost of abatement for multiple projects. The curve represents the effectiveness of abatement options relative to their costs. Abatement cost curves are often provided without transparent accounting for uncertainty in the data they are based on. We address this issue by using Monte Carlo analysis to provide a clear representation of uncertainty for each abatement option, allowing decision-makers to understand how uncertainty impacts the results and to identify actions that reduce uncertainty.
Energy Budgets at RiskTM (EBaRTM)
Energy Budgets at RiskTM analysis takes Value at Risk (VaR) tools and applies them to energy investments. It was developed by US energy economist Jerry Jackson from Texas A&M University. Given the hight level of uncertainty around energy price futures in Australia, Net Balance has extended Jerry Jackson's work by incorporating Conditional Value at Risk (CVaR) analysis into our work. CVaR provides more robust results than VaR alone, focuses on downside risk and is more conservative than VaR. We think this makes an important update for Australian energy markets.
Energy supply and efficiency opportunities can be viewed as a portfolio. By modelling the relationships between energy supply, energy efficiency and greenhouse gas reduction opportunities, we example the impact of combining opportunities and any constraints to offer a robust optimisation process designed to maximise financial benefits or minimise greenhouse gas emissions under uncertainty.