A simple dynamic energy capacity model

I develop a simple dynamic model showing how total energy capacity is allocated to two different uses and how these uses and their corresponding energy flows are related and behave through time. The control variable of the model determines the allocation. All the variables of the model are in terms of a composite energy equivalent measured in BTU's. A key focus is on the shadow price of energy capacity and its behavior through time. Another key focus is on the behavior of the control variable that determines the allocation of overall energy capacity. The matching or linking of the model's variables to real world U.S. energy data is undertaken. In spite of some limitations of the data, the model and its behavior fit the data fairly well. Some energy policy implications are discussed.

► The model shows how energy capacity is allocated to current output production versus added energy capacity production. ► Two variables in the allocation are the shadow price of capacity and the control variable that determines the allocation. ► The model was linked to U.S. historical energy data and fit the data quite well. ► In particular, the policy control variable was cyclical and consistent with the model. ► Policy implications relevant to the allocation of energy capacity are discussed briefly.