3. Vattenfall
Power generating company
Active in North-West Europe
Electricity and CO2-market
model
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
INTRODUCTION
3
4. CO2-market as a measure to
decrease greenhouse gas
emissions.
Affects production costs of
electricity.
How should the electricity
market deal with CO2-costs
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
PROBLEM DESCRIPTION
4
5. “Insight needs to be gained
in long-term CO2-prices and
how they may affect
investments from power
generating companies.”
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
PROBLEM STATEMENT
5
6. CO2-costs Coal
CO2-costs Gas
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
BACKGROUND: COSTS OF
ELECTRICITY
6
Cost of Nuclear
Cost of Coal
Cost of Gas
Powerprice
Electricity
price
Electricity
Demand
Capacity installed
New
electricity
price
8. “How do uncertain CO2-
prices affect the
attractiveness of power plant
portfolios for power
generating companies in
West- and Middle Europe?”
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
RESEARCH QUESTION
8
9. 1. Exploring of possibilities
of the delivered
simulation model
2. Developing a framework
for identifying attractive
portfolios
3. Experimenting
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
RESEARCH APPROACH
9
10. Markowitz (1952): A
portfolio is attractive when
it is a good trade-off
between return and risk.
Translated into: Attractive
portfolios provide a high
potential return and low
regret.
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
FRAMEWORK:
ATTRACTIVE PORTFOLIOS
10
13. Several plausible futures
created
Only differentiating on three
factors, rest is fixed:
Electricity demand
Emission cap
Fuel prices
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
SCENARIOS
13
16. Higher gas prices
Nuclear wind and CCS
Tight Emission cap No
OCGT, more CCS, wind (and
nuclear)
Higher electricity demand
more total capacity &
relative more CCGT, wind,
CCS (and nuclear)
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
1ST SET OF RUNS:
PORTFOLIOS DEVELOPED
16
17. CO2-prices will probably grow
higher than they currently are.
Perfect market knowledge:
CO2-prices could grow somewhere
between 46 and 87 euro/ton.
Companies benefit from situations
with high electricity demand and a
tight emission cap.
However: There is no perfect
market knowledge!!
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
CO2-PRICES AND POWER
PLANT PROFITABILITY
17
19. Prepares for low electricity
demand, a loose emission
cap and low gas prices
Gas technologies + little CCS
technology
Potential for high returns in
situations of scarcity.
This leads to higher prices
Least investment costs, no
regret from overinvestment
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
THE MOST ATTRACTIVE
PORTFOLIO:
19
20. Power generating companies
can best be reserved in their
investments.
This helps them avoiding
regret of making unnecessary
costs, but can also lead to
very high returns.
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
ATTRACTIVE PORTFOLIOS
FOR POWER GENERATORS
20
22. “Introduction of a market
based mechanism might not
have been the best option to
decrease greenhouse gas
emissions.”
Introduction
Problem
description,
background and
relevance
Research
question &
approach
Simulation
model
Scenarios
Simulation
Simulation
Results: perfect
information
Simulation
results:
uncertain future
Conclusions
22
PERSONAL OPINION
28. 𝑀𝑖𝑛: 𝑐 𝑖,𝑡 ∗ 𝑔 𝑖,𝑡 +𝑓𝑖,𝑡 ∗ 𝑔 𝑖,𝑡 + 𝑉
𝑡
𝑜𝐿𝐿 ∗
𝑡𝑖
𝑈𝑆𝐸 𝑡
Equilibrium model which can be asked to solve:
Optimal investments over a longer period of time.
Optimal allocation of CO2 emission allowances depending on
a specific emission-cap.
Optimal hour to hour dispatch of power generators.
MODEL EXPLANATION
28
29. Scenario 1 Scenario 2 Maximum
return:
Alternative 1 100 105 105
Alternative 2 102 104 104
Alternative 3 20 20.1 20.1
29
MEASUREMENT OF MAXIMUM RETURN
30. 30
MEASUREMENT OF MAXIMUM REGRET
Scenario 1 Scenario 2 Maximum
regret
Alternative 1 2 0 2
Alternative 2 0 1 1
Alternative 3 82 84.9 84.9
35. Uncertain market developments
and policy making may have
strong effects on the investment
behavior of power generating
companies.
In absence of clarity power
generators can be expected to
be reserved in their
investments.
The extreme electricity prices
this may cause has major
effects on society.
ADDITIONAL
CONCLUDING REMARKS
35
