Expertise

Economic Models

Sometimes clients face specific sector issues or have particular economic and financial modelling problems. Our model development expertise allows us to build bespoke and purposeful models which provide our clients with powerful, robust insights and analysis.

Talk to our modelling team

With experience across a range of modelling and coding platforms, our experienced analytics team develop and build a broad range of economic and financial models. From customised, stand-alone Excel models right up to centralised, client-server, integrated modelling systems that can be used by dozens of people simultaneously, anywhere in the world.

Our tools are robust and integrated from front to back end, avoiding messy add-ons and retrofitted features and workarounds.

For more than two decades, Frontier Economics has refined a design philosophy and approach to development that ensures that our tools are:

purposeful and meet all functional requirements, efficiently and effectively
user-friendly, easy to use and intuitive
developed in collaboration with our clients
delivered on time and on budget.

Our experience in developing built-for-purpose and bespoke economic and financial models has helped our public and private sector clients prosper across a range of industries.

Our approach is user focused

We work with our client to understand the ‘look and feel’ of the model, and identify the key features that model users will require. This ensures the model meets our clients’ needs, no matter how refined. We combine these needs with our extensive experience, ensuring that our clients receive the right modelling tools to support their decision making.

Some of our economic models include:

energy42 | The energy transition’s leading co-optimising energy modelling tool

energy42 is an integrated electricity, natural gas and hydrogen investment model which simultaneously optimises investment and dispatch in production, storage and transmission across each sector.

Leveraging 20+ years of energy sector modelling experience, energy42 helps make complex investment decisions across electricity, gas and hydrogen sectors. By optimising simultaneously across these sectors, rather than sequentially, energy42 provides a powerful tool to model the real-time interactions between electricity, gas and hydrogen production and storages. It can model scenarios to find the optimal investment outputs, revenues and prices – results which can then be used to inform future policy and investment decisions.

energy42 optimises all three sectors at once, including the flows between them.

Natural gas

Production · Transport · Storage · Consumption · Export

Steam methane reforming (SMR)
Gas is used to make hydrogen

Hydrogen

Production (SMR, PEM) · Transport · Storage · Consumption · Export

PEM electrolysers
Power makes hydrogen

H2 generation
Hydrogen fuels power stations

Electricity

Production · Transport · Storage · Consumption · Export

energy42 optimises all three sectors at once, including the flows between them. Hover over or tap a sector or arrow to trace it.

Download the energy42 brochure (PDF)

Australian Carbon Credit Unit (ACCU)/Safeguard Mechanism model

Australian Carbon Credit Units (ACCUs) are a tradable financial product. They incentivise carbon abatement activities through projects ranging from reforestation to energy efficiency. One ACCU represents one tonne of carbon dioxide equivalent (tCO2-e) that would have otherwise been released into the atmosphere.

Frontier Economics’ Australian Carbon Credit Unit (ACCU)/Safeguard Mechanism market model allows us to forecast ACCU prices to 2050. The granular, bottom-up, model forecasts ACCU prices by interacting voluntary and compliance demand for ACCUs with Marginal Abatement Cost (MACC) curves across time.

Our proprietary model can run different scenarios, provide maximum and minimum ACCU prices for sensitivity analysis, and can identify different sources of abatement supporting the ACCU market.

Inputs

Safeguard facility data

Reported covered emissions for every Safeguard Mechanism facility, from Clean Energy Regulator data, are the starting point for forecast emissions and baselines.

Year, case and net zero scenario

Choose the year, the case and the net zero scenario. Safeguard baselines fall to zero by 2050, or by 2040 in the faster scenario.

Coal and LNG outlook

A facility-by-facility outlook for coal mines and LNG projects, including mine closures and carbon capture and storage, changes the abatement available each year.

Abatement options by sector

Abatement options across oil and gas, coal, industry, land use, carbon capture and ERF projects, each with a cost per tonne and a quantity that is adjusted year by year.

Demand and supply

Compliance demand

Safeguard facilities must surrender ACCUs for emissions above their baselines. As baselines decline each year, compliance demand grows.

Voluntary demand

Businesses also buy ACCUs to offset their emissions voluntarily. Voluntary demand falls as the ACCU price rises.

Marginal abatement cost curve (ACCU supply)

Abatement options are ranked from cheapest to most expensive. The marginal abatement cost curve shows how many ACCUs can be supplied at each price.

Market

Market clearing

At each price, total demand (compliance plus voluntary) is compared with supply. The market clears at the lowest price where supply meets demand.

Price

ACCU price forecast to 2050

The clearing price in each year builds a forecast to 2050. Running scenarios gives maximum and minimum prices for sensitivity analysis, and shows which abatement sources supply the market.

The model builds ACCU demand and supply at every price, then finds the price where they meet. Hover over or tap a box or arrow to trace it.

Examples of how our clients have used our ACCU/Safeguard Mechanism model include:

Investment analysis for the adoption of low-emission technologies,
Internal carbon pricing strategies to map out a credible decarbonisation pathway, and
Analysis of the financial viability of supplying ACCUs into the market, including the potential to capitalise on environmental and social co-benefits.

The ACCU/Safeguard Mechanism model is based on Frontier Economics’ extensive experience in carbon market design, emissions modelling, industry knowledge across energy, transport, waste, land use, and resources, and collaboration with leading academic experts.

Hydro-economic cost benefit analysis (CBA) model

Given the increasingly interrelated nature of our water cycle, it’s no longer enough to separately assess our investments to manage long-term water security, short-term drought and wastewater and stormwater volumes.

Combining hydrological and economic analysis, our latest water model assesses the costs and benefits of alternative drought sequences to identify which supply or demand measure, or portfolio of measures, delivers the greatest value to the community, given uncertainty.

Our model helps decision makers answer questions like these, and more:

Does desalination, water recycling, purified recycled water or water conservation deliver the greatest value for our community?
What value can water restrictions provide in managing drought, given uncertainty around the severity of drought?
What level of water security should we be delivering to our customers?
How should prices be set to recover these costs?

With 20+ years of experience in evaluating the economic, cultural, social and environmental costs and benefits of water security measures, under uncertainty, our Hydro-economic CBA model provides advanced risk and uncertainty analysis using real options analysis.

The model combines the flexibility to model multiple drought sequences at once – to answer what should we do given we don’t know whether we will go into extreme drought and in-depth analysis of a single drought sequence to answer – if we were in this drought sequence, what should we do?

Inputs

Existing system

Existing system yield
Demand-side measures
Drought response measures, including supply-side and water restrictions
Wastewater management measures

Potential build and non-build measures

Capital and operating costs
Triggers for action (incl. storage levels)
Hydrological and water cycle impact, incl. yield, storage depletion, wastewater and stormwater flows
Changes in biophysical outcomes

General

Demand and volume forecasts
Level of service
Climate and drought sequences
Policy setting

System constraints (yield exceeds demand)
Portfolios that meet the level of service
Economic, social and environmental costs and benefits of the portfolios
Identification of drivers of value

Outputs

Timing of investments to align yield and demand
Economic, social, cultural and environmental costs and benefits of measures and portfolios
Optimal portfolio, given uncertainty

Value of flexibility to respond to uncertainty
Optimal portfolio to respond to a given drought sequence

Economic, cultural, social and environmental costs and benefits of levels of service
Inputs into distributional analysis
Inputs into funding analysis (financial cost)