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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

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Optimal emission prices for a district heating system owner with combined heat and power generation capacities

Sebastian Wehrle1, Johannes Schmidt1

1Institute 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

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Incentives for lobbying? District heating companies & CO2 price

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Cost minimization problem for one CHP

min C(qf) = pfqf + peemfqf − pelηelqf s.t.qd

th − ηC thqf = 0

⇒

Heat cost for CHP (pC

th=marginal of balancing equation):

pC

th = 1 ηC

pf + peemf − pelηC

Pass-through ∂pel

∂pe affects CHP heat costs: ∂pC

∂pe = emf ηC

th − ηC el

ηC

∂pel ∂pe

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Change in heat costs depending on pass-through

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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): pB

th = 1 ηB

th pf + emf

ηB

th pe

Easy to show, that dispatch in CHP increases if: pC

th ≤ pB th ⇒ ∂pel ∂pe ≥ 1 ηC

el (emf1 − ηC th

ηB

th emf2)

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Change in heat dispatch (Gas boiler as reference) depending on conversion efficiencies

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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 under following condition −

∂pC th ∂pe qC > ∂pB th ∂pe qB

Easy to show, that total profits increase if share of CHP in total heat production satisfies the following condition (assuming boiler and CHP use same fuel):

qC qB > ηC themf ηC elηB th ∂pel ∂pe +ηC themf −ηB themf

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Minimum total share of CHP depending on pass-through

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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

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Power plant data

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Results - Pass Through

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Results - Fuel Use

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Results - Emissions

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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

perator (0.44) large enough to make our results robust in the short

term

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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

wners of low emission intensity district heating systems (i.e. gas

power plants) better off They therefore should favor higher emission prices.

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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

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AddOn Slides

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