L1D47 (1.4) |
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L1T26 (35%): electricity (4%), renewable_energy (2%) L1T63 (8%): cost (18%), costs (14%) L1T107 (6%): market (32%) L1T106 (4%): optimal (9%), auction (6%) |
title | abstract |
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Coal phase-outs and carbon prices: Interactions between EU emission trading and national carbon mitigation policies (2020) 🗎🗎 | The European Union Emission Trading System (EU ETS) constitutes the core instrument of the European Union climate protection policy. It limits greenhouse gas emissions of its member states and aims at facilitating an efficient allocation of emission reduction across national borders. Accompanying this policy at the European level, individual member states have introduced national mitigation policies, including renewable energy (RES) expansion measures or coal phase-outs. This study examines to what extent national policies affect the effectiveness of the EU ETS and to what degree the impact is reflected in prices for European Union Allowances (EUA). To investigate this question, a fundamental optimization model of the European electricity markets is deployed and model endogenous EUA prices are derived with a set of future market scenarios. Overall findings indicate that fundamental market forces strongly affect EUA prices. Furthermore, national policies play a critical role: The expansion of RES does not affect the capacity of the EU ETS to provide sufficient price signals for the desired level of decarbonization but a coal phase-out has a strong price-suppressing effect. A withdrawal of certificates can re-establish the effectiveness of the EU ETS but prices can rise drastically when overestimating the necessary amount. |
Incumbent's Bane or Gain? Renewable Support and Strategic Behavior in Electricity Markets (2020) 🗎🗎 | Incumbent firms play a decisive role in the success of renewable support policies. Their investments in renewables as well as their operational strategies for their conventional CO2 emitting technologies affect the transition to a sustainable energy system. We use a game theoretical framework to analyze incumbents' reactions to different renewable support policies, namely feed-in tariff (FIT), feed-in premium (FIP), and auction-based policies. We show that a regulator should choose a support scheme based on concerns about either market power or emission abatement: in FIT-based policies, the inctumbent's strategic behavior leads to lower CO2 emissions, but a higher market price compared to FIT-based policies. Furthermore, for FIP-based policies, the regulator might want to incentivize incumbents directly (to further reduce CO2 emissions) or newcomers (to further reduce market power). Particularly in FIP-based auctions, incumbents have the incentive to obtain all auctioned capacity, which could lead to an unchanged market price despite the entrance of new capacity into the market. |
How to deal with the risks of phasing out coal in Germany (2020) 🗎🗎 | Germany has an ambitious climate target for 2030 that cannot be achieved without reducing the high share of coal in power generation. In the face of this, the government has recently decided to directly phase out coal capacity. Yet implementing such a policy comes with two important risks: (1) the decommissioning path might actually be insufficient to reach the 2030 climate target; and (2) the waterbed effect that arises from any additional national policy within the EU Emissions Trading Scheme (EU ETS) cap. In this paper, we quantify these risks using the numerical electricity market model LIMES-EU, and consider options for dealing with them. Our results show that the coal capacity phase out risks missing the 2030 target slightly, but a carbon price floor of at least 35 (sic)/tCO(2) would eliminate this risk. Further, we find a substantial waterbed effect, which could be partly alleviated through a carbon price floor coalition of countries, and even fully by cancelling 1.1 GtCO(2) of certificates. Yet given the difficulties and challenges that come with either option, members implementing a carbon price floor policy should advocate extending it to the full EU ETS level. (C) 2020 Elsevier B.V. All rights reserved. |
Decarbonizing the boardroom? Aligning electric utility executive compensation with climate change incentives (2018) 🗎🗎 | Despite the drastic reversal of decarbonization effort by the Trump administration, the majority of U.S. states continue policies aimed at reducing greenhouse gas (GHG) emissions and increasing renewable energy technology (RET) deployment. Although electrical power utilities are required and/or encouraged to comply with these policies, their executives lack direct incentives to do so. In this study, a novel incentive mechanism is evaluated for aligning utility executive compensation with such policies. First, an overview is provided on chief executive officer (CEO) pay and the GHG emissions of utilities. The relationship between GHG emissions, renewable energy diversification, and CEO pay is examined using the case study of three of the largest electric utilities in Michigan. The results show that the regulated utility market is not consistently rewarding CEOs with higher compensation for decreasing GHG emissions and that both an approach incentivizing RETs adoption and an approach encouraging GHG emissions have deficiencies. A combined approach is then analyzed that results in a compensation equation allowing for utility executives to receive incentive pay for reducing overall emissions and increasing renewable generation. The results indicate that by careful calibration of the proposed incentive equations the harmful effects of emissions can be prevented through CEO incentive pay. |
Exploring investment potential in a context of nuclear phase-out uncertainty: Perfect vs. imperfect electricity markets (2020) 🗎🗎 | In view of the ongoing nuclear power debate in Europe, we analyze how uncertainty about a nuclear phaseout affects investment capacity decisions by Belgian electricity suppliers depending on the type of market structure considered. To achieve this goal, we build a structural model and solve it by using game-theoretic and optimization approaches, in order to consider the different types of market structure, namely oligopoly (simplified to a duopoly in this case), and the two extremes of the competition spectrum, i.e., monopoly and perfect competition. We show that higher levels of investment in new electricity generation capacity are reached with decreasing probability of nuclear license extension and/or with higher levels of competition in the market. Moreover, investments in perfectly competitive markets are less influenced by changes in the probability of future nuclear license extension, resulting in a more stable long-term investment climate. However, the consideration of possible changes in market structure and gradual nuclear phase-out is crucial in order to not overestimate investment potential in Belgium. |
The future of coal and renewable power generation in Australia: A review of market trends (2020) 🗎🗎 | Recent estimates of the levelized cost of energy (LCOE) indicate a watershed moment where market forces have become the foremost driver in the replacement of coal by renewable sources. Current studies indicate an energy market is emerging in which not only new renewable plants are more cost effective than new coal fired power plants (CFPPs), but also the former is becoming more cost effective than existing CFPPS on a levelized cost of energy (LCOE) basis. However, an accelerated retirement of existing CFPPs depends both on the price received by power plants on a time weighted basis and on the total cost of energy which, in addition to the LCOE, takes into account costs of distribution and storage needed to overcome intermittent supply. We use Australia - which is undergoing the world's most rapid decarbonisation of power consumption - as a case study to analyse the economics of this transition and to identify its key drivers. In doing so, we provide an updated estimate of the LCOE for renewable and non-renewable power sources for Australia. We confirm that, currently, the LCOE of both solar PV and wind are substantially below that of coal. It is pointed out that LCOEs are an imperfect metric to gauge the rate of transition which will equally depend on total costs of energy and the prices received by energy providers. However, accounting for total costs (most importantly the cost of intermittency and distribution) we show that, combined with other types of non CFPP storage, the time weighted average price received for renewable power is now above that of CFPPs. In Australia, that is being reflected in purchasing power agreements and auction prices for current and future commercial solar and wind projects. Taking into account the strong and continuing downward trajectory of renewables' total costs we find that a market forces driven further acceleration of the retirement of Australian CFPPs could occur if Government policy does not intervene. (C) 2020 Published by Elsevier B.V. on behalf of Economic Society of Australia, Queensland. |
Nuclear decommissioning after the German Nuclear Phase-Out an integrated view on new regulations and nuclear logistics (2020) 🗎🗎 | With Germany's nuclear phase-out, 23 reactors need to be dismantled in the near future. Initiated by the difficult financial situation of affected utilities in 2014, a major discourse on ensuring financial liability led to a redistribution of liabilities and finances, with the utilities remaining in charge of dismantling, while liability for interim and final storage now transferred to the public. This paper assesses whether the new regulation is ultimately likely to be to the benefit of the public. It introduces a two-stage stochastic optimization framework encompassing the different dismantling phases, resulting waste flows and storage levels of low- and intermediatelevel waste (LLW and ILW) as well as the associated costs. Results show that storage risk - proclaimed as a major barrier to efficient decommissioning - is not a major driver for the optimal decommissioning schedule. However, a delay of ten years might increase interim storage costs now borne by the public by over 20%. Lacking experience and handling capacity of the industry could significantly shrink the buffer currently included in utility funds in order to deal with dismantling uncertainties. Our analysis reveals the storage gate as the new crucial interface between utilities and the public storage provider. |
Strategic investment decisions under the nuclear power debate in Belgium (2019) 🗎🗎 | In view of the current nuclear power debate in Belgium, we analyze how uncertainty about a nuclear phase-out, coupled with the implementation of renewable energy subsidies and nuclear taxes, affects investment capacity and productivity decisions by Belgian electricity suppliers. To achieve this goal, considering the market shares of the Belgian market, we build a Stackelberg two-step equilibrium model in which investment decisions are made in a first step under uncertainty regarding a nuclear phase-out, and productivity decisions are subsequently made in a second step for different investment possibilities found in the first step. Our analysis indicates that, regardless of subsidies, an increase in the probability of nuclear license extension results in lower levels of investment - primarily in renewable energy -. These lower investment levels in turn result in a lower total production and a higher electricity price in a subsequent period in the future. We also show that the implementation of renewable energy subsidies reduces the effect of an increase in probability of nuclear license extension on producer's decisions regarding expanded capacity and therefore, on total future profits in the market. (C) 2019 Elsevier B.V. All rights reserved. |