Evaluating the application of different pricing regimes and low carbon investments in the European electricity market
(2012) Energy Economics — Vol. 34, n° 5, p. 1356-1369 (2012)
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- The EU-ETS is the first measure initiated by the EU to contribute to the decarbonization of the European energy sector. It is a cap and trade system that requires industries participating to the program to procure allowances to cover their emissions. Electricity Intensive Industries (EIIs) have complained that the system put their European plants at disadvantage compared to facilities located outside the EU. They have asked for actions to mitigate this effect; one of them is to have access to long term contracts with electricity suppliers, ideally with those operating carbon free plants. This paper presents and illustrates a method for assessing the impact of this measure on EIIs participating to the EU cap and trade system. We model a power market segmented in two consumer groups EIIs and the rest of the market (N-EIIs). These two groups are subject to different price regimes: EIIs purchase electricity from dedicated base-load power plants at average cost price, while N-EIIs are supplied at marginal cost. The French Exeltium and the Belgian Blue Sky consortia are existing examples of this market organization. The expanse of the territories that can be covered by these systems depends on the organization of transmission organization and on national energy position relative to carbon free generation. We examine two different types of long term average cost based contracts that differ by the organization of transmission and study their impact under different national energy policies. We formulate the problem of operations and investment in this market as a spatial equilibrium model where generators can invest in new capacity subject to different regional constraints. Transmission is organized according to a "flow based" approach as foreseen by Regulatory Authorities and Transmission System Operators in Europe. We also examine the impact of nuclear policies. CO <inf>2</inf> emission allowances are auctioned and tradable. We describe the models and discuss their policy implications through a stylized case study of the Central Western European electricity market. Mathematical properties are provided in the Appendices published in the supplementary materials of this paper. © 2012 Elsevier B.V.
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Oggioni, G., & Smeers, Y. (2012). Evaluating the application of different pricing regimes and low carbon investments in the European electricity market. Energy Economics, 34(5), 1356-1369. https://doi.org/10.1016/j.eneco.2012.06.012 (Original work published 2012)