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The impact of carbon prices on generation-cycling costs

  • Denny, Eleanor
  • O'Malley, Mark

The introduction of mechanisms aimed at reducing greenhouse gas emissions can have a serious impact on electricity system costs. A carbon mechanism that forces generators to internalise their emissions costs may alter the merit order in which generators are dispatched in the market. Heavy carbon dioxide polluters may switch from operating continuously to having to operate on the margin more often. This results in these units being required to switch on and off and vary their output more frequently, which has a significant impact on their costs. In this paper, the impact of carbon prices on the operating profiles of generators in a real electricity system is investigated. A large number of potential scenarios are considered and it is found that carbon prices significantly increase the cycling costs. These increased cycling costs significantly offset the carbon dioxide reduction benefits of the carbon price.

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File URL: http://www.sciencedirect.com/science/article/B6V2W-4V995X9-1/2/132fc5478b8457ab232e51bd02ba09dc
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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 37 (2009)
Issue (Month): 4 (April)
Pages: 1204-1212

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Handle: RePEc:eee:enepol:v:37:y:2009:i:4:p:1204-1212
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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  1. Klaassen, Ger & Riahi, Keywan, 2007. "Internalizing externalities of electricity generation: An analysis with MESSAGE-MACRO," Energy Policy, Elsevier, vol. 35(2), pages 815-827, February.
  2. Delarue, Erik & Lamberts, Hans & D’haeseleer, William, 2007. "Simulating greenhouse gas (GHG) allowance cost and GHG emission reduction in Western Europe," Energy, Elsevier, vol. 32(8), pages 1299-1309.
  3. A. Ellerman & Barbara Buchner, 2008. "Over-Allocation or Abatement? A Preliminary Analysis of the EU ETS Based on the 2005–06 Emissions Data," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(2), pages 267-287, October.
  4. Hepburn, C. & Grubb, M. & Neuhoff, K. & Matthes , F. & Tse, M., 2006. "Auctioning of EU ETS Phase II allowances: how and why?," Cambridge Working Papers in Economics 0644, Faculty of Economics, University of Cambridge.
  5. Karsten Neuhoff & Kim Keats Martinez & Misato Sato, 2006. "Allocation, incentives and distortions: the impact of EU ETS emissions allowance allocations to the electricity sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 73-91, January.
  6. Bonacina, Monica & Gulli`, Francesco, 2007. "Electricity pricing under "carbon emissions trading": A dominant firm with competitive fringe model," Energy Policy, Elsevier, vol. 35(8), pages 4200-4220, August.
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