The power, road transport and household heating sectors in E3ME are represented using a novel framework for the dynamic selection and diffusion of innovations, initially developed by J.-F. Mercure (Mercure, 2012), called FTT (Future Technology Transformations).
The FTT sub-models uses a decision-making core for investors wanting to build new electrical capacity, facing several options. The decision-making core takes place by pairwise levelised cost (LCOE) comparisons, conceptually equivalent to a binary logit model, parameterised by measured technology cost distributions.
Costs include reductions originating from learning curves, although there may also be supply-side constraints (e.g. suitable sites for hydro plants), which are determined by cost-supply curves.
The diffusion of technology follows a set of coupled non-linear differential equations, sometimes called ‘Lotka-Volterra’ or ‘replicator dynamics’, which represent the better ability of larger or well established technologies to capture the market, and the life expectancy of these technologies.
Due to learning-by-doing and increasing returns to adoption, it results in path-dependent technology scenarios that arise from specific sectoral policies.
The power sector model is described further here:
The road transport sector model is described further here:
The household heating sector model is described further here: