Investment planning in electricity production under CO2 price uncertainty

The electricity markets have undergone significant changes during the last years. On the one hand, the market deregulation has increased significantly the uncertainty on future electricity prices. On the other hand, the Kyoto protocol and the establishment of emission restrictions, as well as the development of emission trading systems has added another expense stream for conventional fuel electricity producers and a potential income stream for renewable electricity producers. The emission allowance prices are another source of uncertainty for electricity producers.
The scope of this work is to investigate the effect that various scenarios for emission allowance price evolution may have on the orders for new electricity generation technologies and therefore, on the future electricity generation mix of Greece. The renewable energy generation targets are taken into consideration as a constraint of the system, and the learning rates of the various technologies are included in the calculations.
The national electricity generation system is modelled for long-term analysis and an optimisation method is applied, in order to come up with the optimal generating mix that minimises electricity generation cost, while satisfying the national emissions reduction targets and incorporating the uncertainty of emission allowance prices. In addition, an investigation is made to identify if a point should be expected when renewable energy will be more profitable than conventional fuel electricity generation.
The work is interesting for investment planning in the electricity market, as it may provide directions on which technologies are most probable to dominate the market in the future, and therefore are of interest to be included in the future power portfolios of related investors.