Investments in generation capacities in an oligopolistic electricity ...

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Investments in generation capacities in an oligopolistic electricity ...

market price of tradable CO 2 allowances. We use two assumptions for our simulations.The first is a fixed price of 20e per ton of CO 2 , in line with the priceof carbon futures quoted by EEX for 2008–2012 on June 19th, 2006.However, wealso considered a case where carbon emissions have a zero opportunity cost. Theimpact of this assumption on the merit order and on the variable cost curve of theindustry (with initial capacities) are shown in table 2 and on Figure 2. WhenTable 2: Merit orders and price of carbonCO 2 Quota price 1 2 3 4 50e/t nuclear brown coal hard coal CCGT peakers20e/t nuclear brown coal CCGT hard coal peakersFigure 2: Marginal cost curve of the industryWith 0 e/tCO2 (left panel) and 20 e/tCO2 (right panel)Roman numbers refer to the positions in the merit order given in Table 2Variable cost (Eur/MWh)120100806040200152 3 40 20 40 60 80Installed capacity (GW)Variable cost (Eur/MWh)120100806040200152 3 40 20 40 60 80Installed capacity (GW)the opportunity cost of CO 2 emissions is 20 e/t, an immediate consequence isthat CCGTs have not only lower initial investment costs compared tocoal plants,but also lower variable costs. Therefore no investment is directed to coal powergeneration under this scenario.3.3 Objective functionThe random profit of player i in one year of a time step t is defined by i’ssales minus his production and investments costsπ it =∑ ∑(p jt (Q jt , γ t ) − C l ) h j q il jt (γ t ) − ∑ κ l I il t (γ t ) (8)j ll12

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