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Construction of a fuel demand function portraying interfuel substitution, a system dynamics approach

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  • Ibrahim Abada

    (IFPEN - IFP Energies nouvelles, EDF R&D - EDF R&D - EDF [E.D.F.] - EDF – Électricité de France, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Vincent Briat

    (EDF R&D - EDF R&D - EDF [E.D.F.] - EDF – Électricité de France)

  • Olivier Massol

    (IFPEN - IFP Energies nouvelles, City University London)

Abstract

Most of the recent numerical market partial equilibrium models of natural gas markets use imperfect competition assumptions. These models are typically embedded with a simple representation of the demand side, usually a single-variable, linear, inverse demand function, that does not capture any dynamic adjustment to past prices or energy substitution. To remedy this, we report an effort to construct an enhanced functional specification using the system dynamics-based model of [27], [28]. This putty-clay model uses a vintage representation of capital stock to capture the effect of both past and current energy prices on fuel consumption. Using a re-calibrated version of this model, we first confirm the pertinence of this modeling framework to represent interfuel substitution at different fuel prices in the industrial sector. Building on these findings, a dynamic functional specification of the demand function for natural gas is then proposed and calibrated.

Suggested Citation

  • Ibrahim Abada & Vincent Briat & Olivier Massol, 2011. "Construction of a fuel demand function portraying interfuel substitution, a system dynamics approach," Working Papers hal-02472342, HAL.
    • Handle: RePEc:hal:wpaper:hal-02472342
    Note: View the original document on HAL open archive server: https://ifp.hal.science/hal-02472342v1
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