{"word_count": 403, "character_count": 2828}
Investment Equilibrium Models under Emission Regulation and Different  Energy Price Regimes / Giorgia Oggioni and Yves Smeers. Cambridge :  Electricity Policy Research Group, 2011, 47 p. (Working Paper: EPRG1112)http://www.eprg.group.cam.ac.uk/wp-content/uploads/2011/03/Investment-Emission-Models-under-regulation_Oggioni-and-Smeers_March2011.pdfWe  consider an electricity market with two consumer segments subject to  different price regimes. We formulate the problem of operations and  investment in this market as a spatial equilibrium model where  generators can invest in new capacity subject to different regional  constraints. Transmission is organized according to a "flow based"  approach as foreseen by Regulatory Authorities and System Operators in  Europe. CO2 emissions are ruled by an overall cap and trade system where  tradable allowances are auctioned. The consumer market in each region  is decomposed in two segments: Energy Intensive Industries (EIIs) that  participate in the cap and trade system and the rest of the market  (N-EIIs). EIIs purchase electricity from dedicated base-load power  plants at average cost prices, while N-EIIs are supplied at marginal  cost. This organization, currently foreseen in some national laws in  Europe, reflects a demand of European EIIs to partially mitigate the  burden of emission charges and higher electricity prices due to CO2  regulation. We study two different types of long term average cost based  contracts that differ by the organization of transmission. We present  the models and discuss their policy implications through a case study  applied to the Central Western European electricity market. Their  mathematical properties are provided in Appendices. We first assess the  impact of the EU-ETS on EIIs and other consumers. EIIs complain about  its impact and argue that it can be mitigated through a combined action  of the application of average cost based contracts, the elimination of  the restrictions on nuclear plants and an improved access to the grid.  We first investigate the impact to this better access to the grid by  considering a first case with unlimited network resourses. In this case,  both EIIs and N-EIIs benefit from investments in nuclear. When  inglobing transmission constraints, the situation changes. Average cost  based prices decrease generators' profits in a way that should reduce  EIIs' electricity costs and also decreases overall welfare compared to  pure marginal cost pricing. Possibly unexpected for EIIs, the  application of long term average cost based contracts does not  compensate them for the impact of the EU-ETS. This depends on the  investment policies applied at national level. Only harmonization of  nuclear investment policies at the European level could relieve EIIs  from the EU-ETS burdens. (EPRG)