Optimal emission prices for a district heating system owner with combined heat and power generation capacities Sebastian Wehrle 1 , Johannes Schmidt 1 1 Institute for Sustainable Economic Development, University of Natural Resources and Life Sciences, Vienna, Austria Swedish Association of Energy Economics Conference 2016, 23rd - 24th of August 2016, Lule˚ a, Sweden S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 1 / 16
Incentives for lobbying? District heating companies & CO 2 price S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 2 / 16
Cost minimization problem for one CHP min C ( q f ) = p f q f + p e em f q f − p el η el q f s.t. q d th − η C th q f = 0 ⇒ Heat cost for CHP ( p C th =marginal of balancing equation): p C 1 � p f + p e em f − p el η C � th = η C el th ⇒ Pass-through ∂p el ∂p e affects CHP heat costs: ∂p C th − η C ∂p e = em f ∂p el th el η C η C ∂p e th S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 3 / 16
Change in heat costs depending on pass-through S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 4 / 16
Change in heat dispatch when heat-only boiler is present But what happens to dispatch, if it is possible to switch between CHP and gas boiler? Heat prices in boiler (analogous to CHP): th p f + em f p B 1 th = th p e η B η B Easy to show, that dispatch in CHP increases if: el ( em f 1 − η C th ⇒ ∂p el p C th ≤ p B 1 th em f 2 ) ∂p e ≥ th η C η B S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 5 / 16
Change in heat dispatch (Gas boiler as reference) depending on conversion efficiencies S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 6 / 16
Impact of total share of CHP But how does total costs develop depending on the overall share of gas boilers in the system? Total profits increase ∂pC ∂pB ∂pe q C > ∂pe q B th th under following condition − Easy to show, that total profits increase if ηC share of CHP in total heat production qC themf qB > satisfies the following condition ∂pel ηC elηB ∂pe + ηC themf − ηB themf th (assuming boiler and CHP use same fuel): S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 7 / 16
Minimum total share of CHP depending on pass-through S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 8 / 16
Estimating Pass Through Efficiencies and emissions are private (well known) information of district heating operators The pass-through rate depends on the overall electricity system Pass-through rate estimated with a bottom-up, unit commit dispatch model (MEDEA) for the German-Austrian bidding zone ◮ Model uses detailed system data (power plants, renewable timeseries, load data) to estimate prices on the spot market for a complete year ◮ Linear and a mixed-linear-integer version with full (clustered) unit commit ◮ Input data taken from the year 2014 S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 9 / 16
Power plant data S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 10 / 16
Results - Pass Through S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 11 / 16
Results - Fuel Use S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 12 / 16
Results - Emissions S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 13 / 16
Limitations... and future work MEDEA: perfectly competitive markets, price-inelastic demand, no imports and exports, heat demand not zonal, no investments Overestimation of pass-through rates? ◮ No significant evidence for excessive market power in the German-Austrian market zone ◮ Short-run price elasticity of electricity demand is very low ◮ Imports from low-carbon producers (such as French nuclear power plants) may reduce pass-through ◮ Long term adaptation of investment behavior reduces pass-through Difference between estimated pass-through (0.75) and the pass-through necessary for a typical gas powered district heating operator (0.44) large enough to make our results robust in the short term S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 14 / 16
Conclusions Emission price: large effect on power price through almost complete pass-through Rate of pass-through depends on the absolute level of the emission price Estimated pass-through rates almost twice as high as required to make owners of low emission intensity district heating systems (i.e. gas power plants) better off They therefore should favor higher emission prices. S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 15 / 16
Thanks for your attention Johannes Schmidt johannes.schmidt@boku.ac.at Institute for Sustainable Economic Development University of Natural Resources and Life Sciences Feistmantelstraße 4 1180 Vienna Austria S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 16 / 16
AddOn Slides S. Wehrle, J. Schmidt Optimal emission prices 23rd - 24th of August, 2016 16 / 16
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