Income risk of EU coal-fired power plants after Kyoto
Coal-fired power plants enjoy a significant advantage relative to gas plants in terms of cheaper fuel cost. This advantage may erode (or turn into disadvantage) depending on CO2 emission allowance price. Financial risks are further reinforced when the price of electricity is determined by natural gas-fired plants' marginal costs. We aim to empirically assess the risks in EU coal plants' margins up to the year 2020. Parameter values are derived from actual market data. Monte Carlo simulation allows compute the expected value and risk profile of coal plants' earnings. Future allowance prices may spell significant risks on utilities' balance sheets.
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