Evaluating the Impact of Average Cost Based Contracts on the Industrial Sector in the European Emission Trading Scheme.

Transcription

1 Evaluatng the Impact of Average Cost Based Contracts on the Industral Sector n the European Emsson Tradng Scheme Yves Smeers Unversty of Tokyo October 23 rd, 2007 Wth G. Oggon, Unverstà degl Stud d Bergamo, Italy 1 / 149

2 Background on the European Emsson Tradng Scheme (EU-ETS) Cap and Trade System; EU Member States target: reducton by 8% from 1990 emsson level by the end of the frst Kyoto commtment perod ; Two Phases: ( ) and ( ); The extenson of the EU-ETS s currently n dscusson; Free Allowances (ths wll apparently be revewed n the updated verson of the EU-ETS) 2 / 149

3 Backsde Effects of the Applcaton of the EU-ETS Allowance prce volatlty (between 30 e/ton and less than 1 e/ton); Wndfall profts of power companes; Concern of compettveness; Over-allocaton of emsson permts of the frst Phase; Intense dscussons about allowance allocaton methods (auctonng or grandfatherng?) 3 / 149

4 Outlne (1) 1. Introducton Impacts of the European Emsson Tradng Scheme (EU-ETS) on Industral Sectors 2. Exogenous and ; Common Model Assumptons 4 / 149

5 Outlne (2) 3. Reference Model Reference Model; Complementarty Condtons Form of the Reference Model; Man Results of the Reference Model 4. Accommodatng Large Electrcty Consumers by Specal Contracts Sngle Average Cost Prcng Model; Nodal Average Cost Prcng Model; Results Comparson 5 / 149

6 Outlne (3) 5. Investment Problem New Assumptons; Reference Model; Complementarty Condtons Form of the Reference Model; Results of the Reference Model 6. Specal Contracts Case I: Sngle Average Cost Prcng Model; Case I: Nodal Average Cost Prcng Model; Results Comparson Case II: Sngle Average Cost Prcng Model; Case II: Nodal Average Cost Prcng Model; Results Comparson 7. Concluson 8. 6 / 149

7 Impacts of the EU-ETS on Industral Sectors Impacts of the EU-ETS on Industral Sectors The applcaton of the EU-ETS affects the ndustres cost structure n two ways: 1 Drect (Abatement costs and Allowance Prce) 2 Indrect (Hgher Electrcty Prce) The combnaton of these two factors may endanger ndustral compettveness on nternatonal markets. Ths would mply: 1 Reduced ndustral actvty; 2 Leakage 7 / 149

8 Impacts of the EU-ETS on Industral Sectors Some Evdences...n the steel sector, the ntegrated producton route s expected to be mpacted n ts compettveness. In some cases, producton mght be relocated to other areas.....the cost for a typcal European cement producton process wll ncrease by 36.5%...By far the largest share of the cost ncrease s from drect emssons (93%). In the Electrc Arc Furnaces (EAF) steel process, electrcty can account for between per cent of total energy nputs...the global CO 2 emssons from EAF process therefore depend on the fuel used to produce electrcty. See McKnsey and Ecofys (2006) and Renaud J. (2005). 8 / 149

9 Impacts of the EU-ETS on Industral Sectors Possble solutons For these reasons, ndustral consumers demand: 1 Specal regulatons to avod the pass through of allowance prces n the margnal costs of energy; 2 Specal contracts whereby they can buy electrcty at the average producton costs. NOTE: We focus our attenton on the second pont; However, other solutons are also dscussed lke border tax adjustments 9 / 149

10 Exogenous and Model Common Assumptons Model Analyzed We consder two man problems: 1 (Fxed capacty) 2 (Wth Investments) 10 / 149

11 Exogenous and Model Common Assumptons Market Studed All the models studed are appled to a prototype market of Northwestern Europe 1. 1 Data source: Energy Research Centre of the Netherlands 11 / 149

12 Exogenous and Model Common Assumptons Model Assumptons (1) Models common assumptons: = 7 actve nodes; f = 9 electrcty generatng companes; m = 8 technologes adopted to produce electrcty (hydro, wnd, nuclear, lgnte, coal, CCGT, natural gas and ol based plants); c = 2 market segments (large ndustres (1) and small consumers (2)); t = 2 perods wth dfferent duratons (off-peak (s) and peak (w)); l = 28 transmsson lnes; Stepwse margnal cost curves are used to represent generators supply functons. 12 / 149

13 Exogenous and Model Common Assumptons Model Assumptons (2) Consumers electrcty demand We know that: 1 Large ndustres are more prce elastc than small consumers. They may relocate ther producton actvtes outsde European countres; 2 Large ndustres demand s constant over the year; To account for the frst assumpton, we set the followng reference demand elastctes: Small consumers: 0.1 Large ndustres: 1 Taken from a slde of Newbery: there s an almost complete lack of nformaton of demand response of large ndustral consumers 13 / 149

14 Exogenous and Model Common Assumptons Model Assumptons (3) Fuel costs Cost e/mwh e/gj Coal Natural gas Plant operatonal costs MWh Plant operatonal cost Effcency Coal CCGT References: dd = html 14 / 149

15 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers 15 / 149

16 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Prncple Setup 1 Generaton capactes are fxed; Setup 2 Large ndustral consumers are allowed to conclude long-term contracts at average cost ; 3 The average cost s determned as the average of varable and capacty charges of the capacty allocated to these contracts as well as transmsson costs computed n a zonal prce system; 4 The power sector operates as a bubble as far as the EU-ETS s concerned 16 / 149

17 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Prncple Behavoral Assumptons and Issues Behavoral Assumptons Generaton companes choose how to allocate ther capacty to the large ndustres/rest segments of the market; Issues Average cost prcng ntroduces non convextes n the models and hence possbly an absence or a multplcty of soluton 17 / 149

18 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Summary of the Models Analyzed Emsson cap E of the power sector: 397 Mo/ton 2. 2 Source: Own computatons based on data provded by CITL 18 / 149

19 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Scenaro Model Electrcty companes maxmzaton problem Each electrcty generatng company f maxmzes ts proft: max. p t gf t, hour t + (1) t, t,,m cost f,,m gp t f,,m hour t + +λ (NAP f t,,m gp t f,,m em m hour t ) accountng for the followng constrants: Generaton balance Generaton capacty constrant m gp t f,,m g t f, 0 (η t f,) (2) Cap f,,m gp t f,,m 0 (ν t f,,m) (3) 19 / 149

20 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Scenaro Model Consumers surplus maxmzaton problem Industry max. t=s,w t,1 d [hour t P t,1 (ɛ) dɛ hour t p t d t,1 ] (4) 0 Households max. hour t d s,1 d w,1 = 0 (5) d t,2 0 P t,2 (ɛ) dɛ hour t p t d t,2 (6) 20 / 149

21 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Scenaro Model Global Constrants Market Balance f, g t f, d t,1 d t,2 = 0 (p t ) (7) Electrcty Prce p t = p t + l ( µ t,+ l + µ t, l ) PTDF l, (p t ) (8) Transmsson Constrant Lnecap l ( PTDF l, ( f g t f, d t,1 d t,2 )) 0 (µ t,± l ) (9) Emsson Constrant E t,f,,m gp t f,,m em m hour t 0 (λ) (10) 21 / 149

22 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Complementarty Condtons Form of the Reference Model Generators condtons 0 p t + η t f, g t f, 0 (11) 0 cost f,,m + em m λ + ν t f,,m η t f, gp t f,,m 0 (12) 0 Cap f,,m gp t f,,m ν t f,,m 0 (13) 0 m gp t f,,m g t f, η t f, 0 (14) Industry and Households condtons 0 p s α a s,1 + b s,1 d s,1 d s,1 0 (15) 0 p w + α a w,1 + b w,1 d w,1 d w,1 0 (16) 0 d s,1 d w,1 α 0 (17) 0 p t a t,2 + b t,2 d t,2 d t,2 0 (18) 22 / 149

23 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Complementarty Condtons Form of the Reference Model Market balance equlbrum 0 f, g t f, d t,1 d t,2 phub t 0 (19) Electrcty prces 0 p t phub t m ( µ t,+ l + µ t, l ) PTDF l, p t 0 (20) Transmsson constrants 0 Lnecap l ( PTDF l, ( f gf t, d t,1 d t,2 )) µ t,± l 0 (21) Emsson constrant 0 E t,f,,m g t f,,m em m hour t λ 0 (22) 23 / 149

24 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Man Results Wth our nput data, the ntroducton of the ETS n Europe causes: A global ncrease of electrcty prces; A global decrease of the ndustral electrcty consumpton; Emsson Allowance prce: e/ton 24 / 149

25 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Case wth and wthout ETS Demand Comparson (Industral Sector) Relatve Changes n Industral Consumers Hourly Demand MW Wthout ETS Wth ETS Relatve Changes Germany 32,723 25, % France 24,893 24, % Merchtem 3,615 3, % Gramme 2,013 1, % Krmpen 2,742 2, % Maastrcht % Zwolle 1,825 1, % Total 68,758 60,603-12% 25 / 149

26 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Case wth and wthout ETS Electrcty Prce Comparson Electrcty Prce Changes n Summer e/mwh Wthout ETS Wth ETS Relatve change Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % Short-run margnal cost of coal plants Short-run margnal cost of nuclear plants 26 / 149

27 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Case wth and wthout ETS Electrcty Prce Comparson Under the EU-ETS, electrcty prces ncrease n summer because: Power producers partally shft from coal technologes to CCGT power statons at the observed values of CO 2 prce; Under the EU-ETS, the utlzaton of CCGT ncreases (from 2,916 MW (wthout EU-ETS) to 3,966 MW (wth EU-ETS)), whle coal technologes produce less (from 20,771 MW (wthout EU-ETS) to 8,770 MW (wth EU-ETS)); CCGT nstallatons emt less than coal fuel based technologes, but they are more expensve; CCGT technologes, together wth the pass through of the allowance prce, set the electrcty prce at a hgher level than the coal based plants, operatng wthout the ETS 27 / 149

28 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Case wth and wthout ETS Electrcty Prce Comparson Electrcty Prce Changes n Wnter e/mwh Wthout ETS Wth ETS Relatve change Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % 28 / 149

29 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Case wth and wthout ETS Electrcty Prce Comparson Under the EU-ETS, electrcty prces decrease n wnter because: Electrcty demand decreases; Low-effcency natural gas plants and ol based statons are shut down and are substtuted by CCGT; 29 / 149

30 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Reference Case wth and wthout ETS Electrcty Prce Comparson In accordance wth our nput data: 1 Old natural gas based plants are the last technology n mert order; 2 A natural gas based staton, n average, has a varable cost of e/mwh; 3 The average varable cost of a CCGT plant s e/mwh; 4 The emsson opportunty cost assocated wth a CCGT staton s e/mwh 3 ; 5 Under the EU-ETS, a CCGT power plant totally cost e/mwh, that s almost the prce gven by the model The EU-ETS makes CCGT less expensve than low-effcency natural gas plants and ths explans why power producers abandon natural gas and ol based plants n favor of CCGT technologes 3 Ths value s gven multplyng the allowance prce (26.65 e/mwh) by the CCGT emsson factor (0.432 ton/mwh) 30 / 149

31 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Characterstcs of the Industral Sectors Electrcty ntensve consumers demand specal electrcty servces: 1 The bulk of ther demand s long-run and wth very hgh load; 2 They are also able to fnance the constructon and operaton of large generaton unts. As a consequence one can consder: 1 Market splttng and prce dscrmnaton between households and ndustral consumers; 2 Applcaton of the average cost prcng to ndustral sector. 31 / 149

32 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Sngle Average Cost Prcng Model Industral consumers consttute a power purchase consortum that buys power from plants located n dfferent nodes of the network. The total average cost accounts for two components: 1. Average Producton Cost (pprod 1 ) It s the prce pad by ndustres to generators. It s constant throughout the year: pprod 1 = t hour t ( f,,m (gpt,1 f,,m (cost f,,m + em m λ))) t, d + t,1 hour t + f,,m FC f,,m G 1 f,,m t, d t,1 hour t where G 1 f,,m s the nstalled capacty dedcated to ndustral consumer and FC f,,m the assocated annual fxed costs 32 / 149

33 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Sngle Average Cost Prcng Model 2. Average Transmsson Cost (ptrans 1 ) It corresponds to the transmsson charges that ndustral consumers have to pay to the Transmsson System Operator (TSO) ptrans 1 = t hourt( l, PTDF l, ( f g t,1 t, d t,1 f, d t,1 hour t ) ( µ t,+ l + µ t, l )) 3. Total Average Prce (p 1 ) It s gven by the sum of the producton and the transmsson average costs. It corresponds to the global electrcty prce faced by ndustral consumers: p 1 = pprod 1 + ptrans 1 33 / 149

34 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Sngle Average Cost Prce Model Electrcty companes maxmzaton problem Each electrcty generatng company f maxmzes ts proft: max. pprod 1 g t,1 f, hour t + p t,2 g t,2 f, hour t + (23) t, t, t,,m cost f,,m gp t,1 f,,m hour t cost f,,m gp t,2 f,,m hour t + t,,m +λ (NAP f ( t,,m gp t,1 f,,m emm hour t + gp t,2 f,,m emm hour t )) t,,m subject to: m m gp t,1 f,,m g t,1 f, 0 (η t,1 f, ) (24) gp t,2 f,,m g t,2 f, 0 (η t,2 f, ) (25) Gf 1,,m gp t,1 f,,m 0 Gf 2,,m gp t,2 f,,m 0 (νt,1 f,,m ) (26) (νt,2 f,,m ) (27) Cap f,,m G 1 f,,m G 2 f,,m 0 (γ f,,m ) (28) 34 / 149

35 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Sngle Average Cost Prce Model Consumers surplus maxmzaton problem Industral consumers max. hour t Small consumers max. hour t d t,1 0 d t,2 0 P t,1 (ɛ) dɛ hour t p 1 d t,1 (d t,1 ) (29) P t,2 (ɛ) dɛ hour t p t,2 d t,2 (d t,2 ) (30) 35 / 149

36 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Sngle Average Cost Prce Model Global Constrants (1) Market Balance for Small Consumers g t,2 f, d t,2 = 0 (phub t,2 ) (31) f, Margnal Electrcty Prces (Small Consumers) p t,2 = phub t,2 + ( l ( µ t,+ l + µ t, l ) PTDF l, ) (p t,2 ) (32) Market Balance for Industral Consumers g t,1 f, d t,1 = 0 (β t,1 ) (33) f, 36 / 149

37 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Sngle Average Cost Prce Model Global Constrants (2) Transmsson Constrants Lnecap l ( PTDF l, ( f, g t,1 f, + f, g t,2 f, d t,1 d t,2 )) 0 (µ t,+ l ) (34) Emsson Constrant E ( em m gp t,1 f,,m hour t + t,f,,m t,f,,m em m gp t,2 f,,m hour t ) 0 (λ) (35) 37 / 149

38 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Complementarty Condtons Form of the Sngle Average Cost Prce Model Small Consumers Small consumers (as before except for (43)) 0 p t,2 0 η t,2 f, p t,2 g t,2 f, 0 (36) 0 cost f,,m + λ em m + ν t,2 f,,m ηt,2 f, gpt,2 f,,m 0 (37) 0 m gp t,2 f,,m g t,2 f, ηt,2 f, 0 (38) 0 G 2 f,,m gp t,2 f,,m νt,2 f,,m 0 (39) 0 f, g t,2 f, d t,2 phub t,2 0 (40) 0 p t,2 a t,2 + b t,2 d t,2 d t,2 0 (41) phub t,2 ( l ( µ t,+ l + µ t, l ) PTDF l, ) p t,2 0 (42) 0 γ f,,m t ν t,2 f,,m proportont G 2 f,,m 0 (43) 38 / 149

39 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Complementarty Condtons Form of the Sngle Average Cost Prce Model Industral Consumers (1) Industral consumers The followng s smlar to the small consumers problem and ntended to guarantee producton effcency (mert order) when demand results from a prce p 1 : 0 η t,1 f, β t,1 ( l ( µ t,+ l + µ t, l ) PTDF l, ) g t,1 f, 0 (44) 0 cost f,,m + λ em m + ν t,1 f,,m ηt,1 f, gpt,1 f,,m 0 (45) 0 m gp t,1 f,,m g t,1 f, ηt,1 f, 0 (46) 0 G 1 f,,m gp t,1 f,,m νt,1 f,,m 0 (47) 0 f, g t,1 f, d t,1 β t,1 0 (48) 0 p 1 a t,1 + b t,1 d t,1 d t,1 0 (49) 39 / 149

40 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Complementarty Condtons Form of the Sngle Average Cost Prce Model Industral Consumers (2) The followng (except (54)) computes the prce p 1 as an average cost: 0 pprod 1 0 ptrans 1 t hour t ( f,,m (gpt,1 f,,m (cost f,,m + em m λ))) t, d (50) t,1 hour t f,,m FC f,,m Gf 1,,m t, d pprod 1 0 t,1 hour t t hour t ( l, PTDF l, nj t ( µ t,+ l + µ t, l )) t, d t,1 hour t ptrans 1 0 (51) 0 nj t f g t,1 f, + d t,1 nj 1 0 (52) 0 p 1 pprod 1 ptrans 1 p 1 0 (53) 0 γ f,,m t ν t,1 f,,m proportont G 1 f,,m 0 (54) 40 / 149

41 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Complementarty Condtons of the Sngle Average Cost Prce Model Global Constrants Transmsson constrants (smlar, but not dentcal to the reference model) 0 Lnecap l ( PTDF l, ( f g t,1 f, + f g t,2 f, d t,1 d t,2 )) µ t,+ l 0 (55) Global capacty constrant t,f,,m 0 Cap f,,m G 1 f,,m G 2 f,,m γ f,,m 0 (56) Emsson constrant (smlar, but not dentcal to the reference model) 0 E ( em m gp t,1 f,,m hour t + em m gp t,2 f,,m hour t ) λ 0 (57) t,f,,m 41 / 149

42 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Complementarty Condtons Form of the Sngle Average Cost Prce Model Capacty allocaton mechansm Capacty allocaton mechansm 0 γ f,,m t 0 γ f,,m t ν t,2 f,,m proportont G 2 f,,m 0 (43) ν t,1 f,,m proportont G 1 f,,m 0 (54) 0 Cap f,,m G 1 f,,m G 2 f,,m γ f,,m 0 (56) These three relatons equalze the margnal value of the capacty allocated by a frm to the two segments of the market 42 / 149

43 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Sngle Average Cost Prcng Model Sngle Average Cost Prce Sngle Average Cost Prce Cost components e/mwh Fuel Transmsson 2.81 Emsson 9.98 Fxed costs Average cost prce Emsson allowance prce: 40.22e/ton. Transmsson costs are negatve because they are gven by the sum of negatve values. These negatve values are nfluenced both by the PTDF sgns and by flow drectons (France export to Germany and Belgum whch n ts turn delver power to the Netherlands). (To be compared wth e/ton n the reference model) 43 / 149

44 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Sngle Average Cost Prcng Model Electrcty Prce Comparson (Small Consumers) Relatve changes n small consumers electrcty prces (Summer) SUMMER e/mwh Reference Case Sngle average cost Relatve changes Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % Relatve changes n small consumers electrcty prces (Wnter) WINTER e/mwh Reference Case Sngle average cost Relatve changes Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % 44 / 149

45 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Sngle Average Cost Prcng Model Demand Comparson (Industral Consumers) Comparson of the Industral Consumers Hourly Demand MW Reference case Sngle average cost Relatve changes Germany 25,107 33,089 32% France 24,912 20,672-17% Merchtem 3,528 4,805 36% Gramme 1,963 2,065 5% Krmpen 2,595 3,535 36% Maastrcht 886 1,207 36% Zwolle 1,612 2,166 34% Total 60,603 67,539 11% 45 / 149

46 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Sngle Average Cost Prcng Model Demand Comparson (Small Consumers) Comparson of the Small Consumers Hourly Demand (Summer) SUMMER MW Reference Case Sngle average cost Relatve changes Germany 18,746 18, % France 22,096 22, % Merchtem 1,287 1, % Gramme % Krmpen 2,897 2, % Maastrcht % Zwolle 1,151 1, % Total 47,444 46,955-1% Comparson of the Small Consumers Hourly Demand (Wnter) WINTER MW Reference case Sngle Average cost Relatve changes Germany 47,940 44,699-7% France 44,542 43,344-3% Merchtem 4,496 3,927-13% Gramme 1,924 1,760-9% Krmpen 7,332 6,579-10% Maastrcht 1,777 1,610-9% Zwolle 2,977 2,710-9% Total 110, ,629-6% 46 / 149

47 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Sngle Average Cost Prcng Model Demand Comparson (Global Annual Demand) Comparson of the Consumers Global Annual Demand GLOBAL ANNUAL DEMAND MWh Reference case Sngle average cost Relatve changes Germany 489,951, ,134, % France 493,129, ,810, % Merchtem 53,803,596 62,747, % Gramme 27,136,277 27,359, % Krmpen 64,187,582 69,418, % Maastrcht 17,750,349 19,911, % Zwolle 30,820,955 34,601, % Total 1,176,779,721 1,211,982, % 47 / 149

48 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Sngle Average Cost Prcng Model Capacty Dedcated to Industral Consumers Capacty Dedcated to Industral Consumers (wth respect to the total nstalled capacty) Hydro Wnd Nuclear Lgnte Coal CCGT Germany 100% 73% 63% 65% 0% 28% France 64% 100% 49% 0% 0% 0% Merchtem 100% 65% 66% 53% Gramme 100% 100% 80% 0% 0% Krmpen 100% 100% 0% 78% Maastrcht 100% 0% Zwolle 100% 0% 43% Total 72% 75% 54% 64% 3% 28% 48 / 149

49 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Sngle Average Cost Prcng Model Summary The comparson wth respect to the reference case shows that: 1 Sngle average cost prce s lower than margnal cost prces found n the reference case. Ths holds for all nodes except for France 4 ; 2 Industres globally ncrease ther electrcty consumpton by 11% (p.a.); 3 Small consumers face hgher electrcty prces especally n wnter, when ol and natural gas based plants n addton wth emsson allowance set ther power prces; 4 Emsson allowance prce s very hgh e/ton; 5 Industres requre more electrcty than n the reference case. Ths makes the consumers global demand ncreasng and then power producers explot all the avalable capacty. Ths explans why emsson allowances are so expensve 4 Ther summer margnal electrcty prce was very low: only 5.10 e/mwh 49 / 149

50 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Nodal Average Cost Prcng Model Ths model dffers from the prevous one by the fact that: 1 Industral consumers buy electrcty through specal contracts wth local generators; 2 Industres are then suppled only wth electrcty produced at the node where they are located; 3 Electrcty ntensve ndustral users do not have to pay transmsson costs; 4 Electrcty average cost prces dffer per node n accordance wth the technology employed to generate power. 50 / 149

51 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Nodal Average Cost Prcng Model The average cost prce vares wth the node. The obtaned prces p 1 are functons of the varable cost components (fuel and emsson) and of the fxed charges. p 1 = t hour t ( f,m (gpt,1 f,,m (cost f,,m + em m λ))) + t d t,1 hour t f,m FC f,m, G 1 f,,m t d t,1 hour t where G 1 f,,m s the nstalled capacty dedcated to ndustral consumers and FC f,m, are the correspondng annual fxed costs 51 / 149

52 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Nodal Average Cost Prce Nodal Average Cost Prces e/mwh Fuel Emsson Fxed Average cost prce Germany France Merchtem Gramme Krmpen Maastrcht Zwolle Emsson Allowance Prce: 30.85e/ton (To be compared wth e/ton (reference model) and e/ton (sngle average cost model)) 52 / 149

53 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Electrcty Prce Comparson (Industral Consumers) Relatve Changes n Industral Electrcty Prces % Reference % Sngle Germany -8% 20% France -21% -49% Merchtem -18% 10% Gramme -14% -13% Krmpen 11% 48% Maastrcht 24% 65% Zwolle 23% 63% Relatve changes of nodal average cost prces wth respect to the average of those of the reference case Relatve changes of nodal average cost prces wth respect to those of the sngle average cost prce model 53 / 149

54 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Electrcty Prce Comparson (Small Consumers) Relatve Changes n Small Consumers Electrcty Prces (Summer) SUMMER e/mwh Sngle average cost Nodal average cost Relatve changes Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % Relatve Changes n Small Consumers Electrcty Prces (Wnter) WINTER e/mwh Sngle average cost Nodal average cost Relatve changes Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % The huge ncrease of French small consumers prce n summer explans the drop n ther electrcty demand. 54 / 149

55 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Demand Comparson (Industral Consumers (1)) Comparson of the Industral Consumers Demand MW Reference case Sngle Average cost Nodal Average cost Germany 25,107 33,089 27,935 France 24,912 20,672 28,755 Merchtem 3,528 4,805 4,438 Gramme 1,963 2,065 2,281 Krmpen 2,595 3,535 2,186 Maastrcht 886 1, Zwolle 1,612 2,166 1,093 Total 60,603 67,539 67, / 149

56 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Demand Comparson (Industral Consumers (2)) Relatve Changes n Industral Consumers Hourly Demand % Reference % Sngle Germany 11% -16% France 15% 39% Merchtem 26% -8% Gramme 16% 10% Krmpen -16% -38% Maastrcht -34% -51% Zwolle -32% -50% Total 11% -0.4% Relatve changes n ndustral demand gven by the comparson between the reference and the nodal average cost cases Relatve changes n ndustral demand gven by the comparson between the sngle and the nodal average cost prcng cases 56 / 149

57 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Demand Comparson (Small Consumers) Comparson of the Small Consumers Hourly Demand (Summer) SUMMER MW Sngle average cost Nodal average cost Relatve changes Germany 18,358 18,555 1% France 22,127 19,868-10% Merchtem 1,251 1,281 2% Gramme % Krmpen 2,845 2,884 1% Maastrcht % Zwolle 1,131 1,143 1% Total 46,955 44,966-4% Comparson of the Small Consumers Hourly Demand (Wnter) WINTER MW Sngle average cost Nodal average cost Relatve changes Germany 44,699 46,247 3% France 43,344 41,921-3% Merchtem 3,927 4,007 2% Gramme 1,760 1,803 2% Krmpen 6,579 7,003 6% Maastrcht 1,610 1,770 10% Zwolle 2,710 2,890 7% Total 104, ,639 1% Globally, small consumers demand decreases n summer. Ths s manly due to the cut of 10% of the French small consumers demand 57 / 149

58 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Demand Comparson (Global Annual Demand (1)) Comparson of the Global Annual Demand GLOBAL ANNUAL DEMAND MWh Reference case Sngle average cost Nodal average cost Germany 489,951, ,134, ,606,506 France 493,129, ,810, ,855,053 Merchtem 53,803,596 62,747,254 59,972,043 Gramme 27,136,277 27,359,393 29,330,033 Krmpen 64,187,582 69,418,178 59,338,313 Maastrcht 17,750,349 19,911,214 15,074,774 Zwolle 30,820,955 34,601,307 25,917,735 Total 1,176,779,721 1,211,982,108 1,203,094, / 149

59 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Demand Comparson (Global Annual Demand (2)) Relatve Changes n Global Annual Demand % Reference % Sngle Germany 4% -7% France 3% 12% Merchtem 11% -4% Gramme 8% 7% Krmpen -8% -15% Maastrcht -15% -24% Zwolle -16% -25% Total 2% -1% Relatve changes n ndustral demand gven by the comparson between the reference and the nodal average cost cases Relatve changes n ndustral demand gven by the comparson between the sngle and the nodal average cost prcng cases 59 / 149

60 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Capacty Dedcated to Industral Consumers Capacty Dedcated to Industral Consumers (wth respect to the total nstalled capacty) Hydro Wnd Nuclear Lgnte Coal CCGT Germany 51% 56% 69% 55% 18% 0% France 7% 0% 62% 0% 0% 0% Merchtem 0% 98% 0% 93% Gramme 77% 35% 68% 0% 63% Krmpen 26% 100% 0% 41% Maastrcht 17% 19% Zwolle 0% 0% 23% Total 16% 53% 66% 55% 11% 18% 60 / 149

61 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Results of the Nodal Average Cost Prcng Model Summary 1 Industral consumers requre almost an dentcal amount of electrcty n the two average cost prcng scenaros; 2 The global annual demand s hgher than n the reference case (+2% ncrease) and lower than n sngle average cost case (-1% decrease). Ths explans why n the nodal average cost case emsson allowance prce s hgher than n the reference model, but lower than n sngle average cost scenaro The combnaton of these effects explans why emsson allowance prce falls to e/ton 61 / 149

62 Reference Scenaro Complementarty Condtons Form Man Results of the Reference Case () Accommodatng Industral Consumers Man Results The applcaton of these specal prcng polces seems to have a general postve effect on ndustres. In fact: 1 Industral electrcty prces tend to decrease wth respect to the reference case; 2 Industral electrcty demand generally ncreases wth respect to the reference case: ths s the desred effect; 3 Industres have access to base-load capacty characterzed by low emsson factor; 4 The fuel mx on whch countres base ther electrcty producton s a key factor n meetng the ETS target; 5 Allowance prces are qute hgh n both approaches: e/ton and e/ton respectvely n the sngle and the nodal average cost prcng models. 62 / 149

63 Assumptons Reference Model Case I Case II 63 / 149

64 Assumptons Reference Model Case I Case II New Assumptons (1) Setup 1 Generaton capactes are endogenous; 2 New power nstallatons do not receve emsson allowances for free; 3 New power nstallatons are supposed to be avalable n the second phase of the EU-ETS; 4 New and old nstallatons have an dentcal cost structure; 5 New emsson cap: 358 Mo/ton. p.a 5 5 Source: Own computaton based on data reported on http : //europa.eu/rapd/pressreleasesacton.do?reference = IP/07/ / 149

65 Assumptons Reference Model Case I Case II New Assumptons (2) Setup 1 Reference case: only power companes nvest and apply dentcal margnal cost prce to both consumer groups; 2 CASE I: only power companes nvest, but they charge average cost to ndustres; 3 CASE II: power companes and ndustral consumers nvest. Industres buy at the margnal cost from generators (requrement of non dscrmnaton) 65 / 149

66 Assumptons Reference Model Case I Case II New Assumptons (3) 66 / 149

67 Assumptons Reference Model Case I Case II Reference Model Assumptons of the Reference Model Assumptons of the reference model 1 Electrcty generatng companes supply both ndustral and small consumers and apply dentcal margnal cost based prces to both market segments; 2 No market segmentaton; 3 No capacty splt; 4 Electrcty generatng companes are the only ones to nvest 67 / 149

68 Assumptons Reference Model Case I Case II Man Results Investment Polcy The nvestment polcy adopted by electrcty generatng companes s as follows: Wthout EU-ETS, power producers expand ther capacty and buld new nuclear (n France), lgnte (n Germany) and coal (n the other nodes) statons; The ncepton of the EU-ETS pushes power companes to nvest n clean technologes, namely n wnd and nuclear; There are no nvestments n CCGT technologes. Wthout EU-ETS, power companes prefer buldng new coal statons snce they are cheaper; whle the ncepton of carbon regulaton encourages nvestments n nuclear. Moreover, accordng to our data, CCGT are qute expensve 68 / 149

69 Assumptons Reference Model Case I Case II Man Results Comparson wth the former reference case Lke n the former reference case, the ncepton of the EU-ETS results n: An ncrease n consumers electrcty prces; A global decrease of the ndustral electrcty consumpton BUT Wth respect to the former reference case, one has: A global decrease of electrcty prces; A global ncrease of the ndustral electrcty consumpton due to the reduced electrcty prce and the expanson of the producton park; Although consumers demand ncreases, emsson allowance prce s lower than before (21.24 e/ton) because power producers nvest n clean technologes; Ths holds for both consumer groups 69 / 149

70 Assumptons Reference Model Case I Case II Reference Case wth and wthout ETS Demand Comparson (Industral Sector) Relatve Changes n Industral Consumers Hourly Demand MW Wthout ETS Wth ETS Relatve Changes Germany 39,389 27,916-29% France 27,754 27,754 0% Merchtem 5,103 4,050-21% Gramme 2,425 2,223-8% Krmpen 3,754 2,745-27% Maastrcht 1, % Zwolle 2,380 1,738-27% Total 82,087 67,378-18% 70 / 149

71 Assumptons Reference Model Case I Case II Reference Case wth and wthout ETS Demand Comparson (Small Consumers) Relatve Changes n Small Consumers Hourly Demand (Summer) SUMMER MW Wthout ETS Wth ETS Relatve Changes Germany 20,024 18,991-5% France 22,127 22,127 0% Merchtem 1,344 1,311-3% Gramme % Krmpen 3,028 2,915-4% Maastrcht % Zwolle 1,209 1,160-4% Total 49,042 47,784-3% Relatve Changes n Small Consumers Hourly Demand (Wnter) WINTER MW Wthout ETS Wth ETS Relatve Changes Germany 49,355 48,235-2% France 45,866 45,866 0% Merchtem 4,629 4,523-2% Gramme 1,981 1,943-2% Krmpen 7,549 7,359-3% Maastrcht 1,829 1,788-2% Zwolle 3,065 2,994-2% Total 114, ,707-1% 71 / 149

72 Assumptons Reference Model Case I Case II Reference Case wth and wthout ETS Electrcty Prce Comparson Electrcty Prce Changes n Summer SUMMER e/mwh Wthout ETS Wth ETS Relatve Changes Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % Electrcty Prce Changes n Wnter WINTER e/mwh Wthout ETS Wth ETS Relatve Changes Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % Short-run margnal cost of nuclear plant 72 / 149

73 Assumptons Reference Model Case I Case II Reference Case wth and wthout EU-ETS Investments Wthout and Wth EU-ETS Investment Wthout EU-ETS MW Nuclear Lgnte Coal Total Germany 19,584 19,584 France 16,604 16,604 Merchtem 3,293 3,293 Gramme 0 Krmpen 3,166 3,166 Maastrcht 1,471 1,471 Zwolle 0 Total 16,604 19,584 7,929 44,117 Investment Wth EU-ETS MW France Merchtem Total Wnd 2,596 2,596 Nuclear 26,642 26,642 Total 26,642 2,596 29, / 149

74 Assumptons Reference Model Case I Case II Assumptons of the Case I We modfy the reference case and suppose: 1 Market segmentaton between ndustral and small consumers; 2 Capacty splttng between ndustral and small consumers; 3 Applcaton of average cost based prces (sngle and nodal) to ndustral consumers; 4 Applcaton of short-run margnal cost prces to small consumers; 5 Old and new nstallatons have dentcal cost structures 74 / 149

75 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Sngle Average Cost Prce Sngle Average Cost Prce Cost components e/mwh Fuel 6.63 Transmsson 4.48 Emsson 5.41 Fxed costs Average cost prce Transmsson costs are negatve because they are gven by the sum of negatve values. These negatve values are nfluenced both by the PTDF sgns and by flow drectons (France export to Germany and Belgum whch n ts turn delver power to the Netherlands). Allowance prce s e/ton 75 / 149

76 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Electrcty Prce Comparson (Small Consumers) Relatve Changes n Small Consumers Electrcty Prces (Summer) SUMMER e/mwh Reference case Sngle Average cost Relatve change Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % Relatve Changes n Small Consumers Electrcty Prces (Wnter) WINTER e/mwh Reference case Sngle Average cost Relatve change Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % 76 / 149

77 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Demand Comparson (Industral Consumers) Relatve Changes n Industral Consumers Hourly Demand MW Reference case Sngle Average cost Relatve Change Germany 27,916 38,506 38% France 27,754 24,057-13% Merchtem 4,050 5,591 38% Gramme 2,223 2,403 8% Krmpen 2,745 4,114 50% Maastrcht 952 1,405 48% Zwolle 1,738 2,520 45% Total 67,378 78,597 17% 77 / 149

78 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Demand Comparson (Small Consumers) Relatve Changes n Small Consumers Hourly Demand (Summer) SUMMER MW Reference case Sngle Average cost Relatve Change Germany 18,991 18, % France 22,127 22, % Merchtem 1,311 1, % Gramme % Krmpen 2,915 2, % Maastrcht % Zwolle 1,160 1, % Total 47,784 47, % Relatve Changes n Small Consumers Hourly Demand (Wnter) WINTER MW Reference case Sngle Average cost Relatve Change Germany 48,235 47,883-1% France 45,866 45,866 0% Merchtem 4,523 4,499-1% Gramme 1,943 1,925-1% Krmpen 7,359 6,952-6% Maastrcht 1,788 1,738-3% Zwolle 2,994 2,895-3% Total 112, ,757-1% 78 / 149

79 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Exstng Capacty Dedcated to Industral Consumers Exstng capacty dedcated to ndustral consumers Hydro Wnd Nuclear Lgnte Coal CCGT Germany 73% 54% 51% 51% 21% 0% France 32% 100% 41% 0% 0% 0% Merchtem 72% 47% 0% 0% Gramme 100% 100% 50% 0% 0% Krmpen 100% 52% 37% 27% Maastrcht 100% 27% Zwolle 100% 75% 0% Total 41% 57% 44% 51% 18% 6% 79 / 149

80 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Investments under the EU-ETS Investments for Small Consumers MW Germany France Merchtem Total Wnd 4, ,992 Nuclear 6,252 6,252 Total 4,697 6, ,243 Investments for Industral Consumers MW Germany France Merchtem Gramme Krmpen Total Wnd 6,446 5, ,504 Nuclear 14,879 14,879 CCGT Total 6,446 14,879 5, , / 149

81 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Summary Wth respect to the nvestment reference case: 1 Industral consumers ncrease ther electrcty consumpton snce electrcty becomes cheaper; 2 Sngle average cost prcng system damages small consumers: ther electrcty prces slghtly ncrease mplyng a reducton of ther electrcty consumpton; 3 Emsson allowance prce s hgher snce the global market demand rses; 4 Investments n new capacty (namely wnd and nuclear) are globally hgher than n the reference case 81 / 149

82 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Nodal Average Cost Prce Nodal Average Cost Prce e/mwh Fuel Emsson Fxed Average cost prce Germany France Merchtem Gramme Krmpen Maastrcht Zwolle Emsson Allowance Prce: e/ton 82 / 149

83 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Electrcty Prce Comparson (Industral Consumers) Relatve Changes n Industral Consumers Electrcty Prces % Reference % Sngle Germany -6% 41% France 3% -36% Merchtem -15% 27% Gramme -27% -22% Krmpen 11% 79% Maastrcht 33% 113% Zwolle 28% 101% Relatve changes of nodal average cost prces wth respect to the average of those of reference case Relatve changes of nodal average cost prces wth respect to those of the sngle average cost prce 83 / 149

84 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Electrcty Prce Comparson (Small Consumers) Relatve Changes n Small Consumers Electrcty Prces (Summer) SUMMER e/mwh Sngle Average Cost Nodal Average Cost Relatve Changes Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % Relatve Changes n Small Consumers Electrcty Prces (Wnter) WINTER e/mwh Sngle Average Cost Nodal Average Cost Relatve Changes Germany % France % Merchtem % Gramme % Krmpen % Maastrcht % Zwolle % 84 / 149

85 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Demand Comparson (Industral Consumers) Comparson of Industral Consumers Hourly Demand MW Reference case Sngle Average cost Nodal Average cost Germany 27,916 38,506 29,965 France 27,754 24,057 28,755 Merchtem 4,050 5,591 4,774 Gramme 2,223 2,403 2,689 Krmpen 2,745 4,114 2,354 Maastrcht 952 1, Zwolle 1,738 2,520 1,149 Total 67,378 78,597 70, / 149

86 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Demand Comparson (Industral Consumers) Relatve Changes n Industral Consumers Hourly Demand % Reference % Sngle Germany 7% -22% France 4% 20% Merchtem 18% -15% Gramme 21% 12% Krmpen -14% -43% Maastrcht -43% -61% Zwolle -34% -54% Total 4% -11% Relatve changes n ndustral demand gven by the comparson between the reference and the nodal average cost cases Relatve changes n ndustral demand gven by the comparson between the sngle and the nodal average cost prcng cases 86 / 149

87 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Electrcty Demand Comparson (Small Consumers) Relatve Changes n Small Consumers Hourly Demand (Summer) MW Sngle Average cost Nodal Average cost Relatve changes Germany 18,750 18, % France 22,127 22, % Merchtem 1,316 1, % Gramme % Krmpen 2,898 2, % Maastrcht % Zwolle 1,151 1, % Total 47,494 47, % Relatve Changes n Small Consumers Hourly Demand (Wnter) MW Sngle Average cost Nodal Average cost Relatve changes Germany 47,883 48, % France 45,866 45, % Merchtem 4,499 4, % Gramme 1,925 1, % Krmpen 6,952 7, % Maastrcht 1,738 1, % Zwolle 2,895 2, % Total 111, , % 87 / 149

88 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Capacty Dedcated to Industral Consumers Capacty dedcated to ndustral consumers Hydro Wnd Nuclear Lgnte Coal CCGT Germany 77% 98% 66% 40% 30% 0% France 7% 0% 60% 0% 0% 0% Merchtem 66% 59% 0% 0% Gramme 100% 100% 100% 0% 0% Krmpen 100% 100% 38% 16% Maastrcht 100% 15% Zwolle 100% 100% 12% Total 21% 98% 63% 40% 25% 6% 88 / 149

89 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Investment under the EU-ETS Investments for Small Consumers MW France Merchtem Total Wnd Nuclear 26,680 26,680 Total 26, ,501 Investments for Industral Consumers MW France Merchtem Gramme Total Wnd 3, ,991 Nuclear Total 990 3, , / 149

90 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Summary 1 Industral demand s hgher wth respect to the reference nvestment case, but lower wth regard to the sngle average cost case; 2 Electrcty prces and consumpton of the retal sector s algned wth those of the reference nvestment case and lower (prce) and hgher (consumpton) n comparson wth the sngle average cost model (small consumers proft from ths polcy); 3 Emsson allowance prce s e/ton; 4 Investments n new capacty are lower than n the sngle average cost prcng scenaro: ths oblges electrcty generatng companes to explot more already exstng capacty; 5 Global consumers annual demand s lower than n the sngle average nvestment case, but hgher than n the reference nvestment case: ths explans the allowance prce trend (21.24 e/ton (reference), e/ton (sngle) and e/ton (nodal)) 90 / 149

91 Assumptons Reference Model Case I Case II Assumptons of the Case II We modfy the Reference Case and suppose: 1 Electrcty generatng companes supply both ndustral and small consumers and apply nodal margnal cost prces; 2 Both electrcty and ndustres may nvest n new nstallatons; 3 Industral consumers face average cost based prces (sngle and nodal) when they vertcally ntegrate electrcty producton; 4 Old and new nstallatons have dentcal cost structures 91 / 149

92 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Summary Industres do not nvest and buy electrcty from power producers at the margnal cost prce; Power producers buld new wnd and nuclear plants for both consumer segments; Emsson constrant s bndng and allowances prce s e/ton. Ths s slghtly hgher than n the reference case (21.24 e/ton) because there s a margnal ncrease n ndustral demand. Small consumers requre almost the same amount of electrcty We compare the results of ths nvestment case II wth those of the reference nvestment scenaro 92 / 149

93 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Industral Consumers Electrcty Prces Industral Consumers Electrcty Prces (Margnal Prces) Nodes e/mwh Germany France Merchtem Gramme Krmpen Maastrcht Zwolle These prce are smlar (but n average lower) to the average of those of the reference nvestment case 93 / 149

94 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Small Consumers Electrcty Prces Small Consumers Electrcty Prces e/mwh Summer Wnter Germany France Merchtem Gramme Krmpen Maastrcht Zwolle / 149

95 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Industral consumers Hourly Demand Wth respect to the reference nvestment case, there s a slght ncrease of the ndustral electrcty demand Hourly Industral Demand (MW) Nodes MW Germany 28,187 France 28,999 Merchtem 4,098 Gramme 2,285 Krmpen 2,769 Maastrcht 951 Zwolle 1,750 Total 69, / 149

96 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Electrcty Demand (Small consumers) Small Consumers Hourly Demand MW Summer Wnter Germany 18,986 48,229 France 22,127 45,866 Merchtem 1,310 4,525 Gramme 587 1,936 Krmpen 2,914 7,370 Maastrcht 694 1,788 Zwolle 1,160 2,995 Total 47, ,709 Small consumers demand s almost dentcal to that of the reference nvestment case 96 / 149

97 Assumptons Reference Model Case I Case II Results of the Sngle Average Cost Prce Model Investment New capacty bult by power companes for small consumers MW France Merchtem Total Wnd 1 1 Nuclear 4,441 4,441 Total 4, ,442 New capacty bult by power companes for ndustral consumers MW France Merchtem Total Wnd 2,995 2,995 Nuclear 23,444 23,444 Total 23,444 2,995 26, / 149

98 Assumptons Reference Model Case I Case II Results of the Nodal Average Cost Prce Model Summary Results are closed to those of the reference nvestment case and those of the nodal average cost model wth fxed capacty; Electrcty prces and demands of ndustral and small consumers are dentcal to those of the former sngle average case; Agan, ndustres do not nvest and buy electrcty from power companes at the margnal cost; Power producers nvest n nuclear and n wnd power statons. The total MW of new capacty bult are dentcal to those of the former sngle nvestment case, but they are subdvded n a dfferent way between small and ndustral consumers; Emsson allowance prce s stll e/ton 98 / 149