IEEE POWER-TECH, BUCHAREST, 2009 1 Electricity and CO2 Emissions System Price Modeling Steffen Rebennack, Member, IEEE, Niko A. Iliadis, Member, IEEE, Mario V.F. Pereira, Member, IEEE, and Panos M. Pardalos Abstract—We present two stochastic models optimizing a hydro-thermal power system; the first from the perspective of a global system and the second from a sub-system’s (country or utility) perspective within a liberalized market. Particularly CO2 emission quotas and CO2 certificate prices are taken into account. The first model seeks to compute the electricity system marginal price as well as the CO2 emissions marginal price by minimizing the expected system’s cost of operation. In the second model, the expected revenues of the sub-system within a liberalized electricity market are maximized while considering stochastic inflows, electricity, fuel and CO2 prices. The above-mentioned stochastic variables are represented via joint scenarios. The resulting stochastic linear program will be solved via hybrid SDP/SDDP. Index Terms—CO2 portfolio management, CO2 market price, CO2 quota, CO2 emission trading, energy, power systems opti- mization, SDDP, Stochastic Linear Programming I. NOMENCLATURE The nomenclature of this article is summarized in Table I. All data are given in capital letters while the variables are denoted in small letters. The ξ captures the stochastic or random aspects of the data. II. I NTRODUCTION T HE EU power system faces important problems of CO2 emissions excess with respect to the Kyoto treaty. As it is widely known, CO2 is one of the most important inhibitors on the global warming phenomenon, for which the EU has been campaigning actively the last years. We can observe actions that are taken in all countries attempting to optimize the operation of the plants subject to the maximization of profits or the minimization of costs while considering the CO2 emissions. In addition, in order to improve the balancing of CO2 emissions, most of the countries are participating in a ‘cap and trade’ mechanism where utilities and other industries can optimize their CO2 allocation. In 2006, the EU power system generation consisted of 54.7% thermal, 29.3% nuclear and 14.6% of renewable energy sources (EU 27), [1]. The thermal percentage, which accounts Steffen Rebennack is with the University of Florida, Department of Indus- trial & Systems Engineering, 32611 Gainesville, FL, USA (phone: +1 352 392-3091; fax: +1 352 392-3537; e-mail: steffen@ufl.edu). Niko A. Iliadis is with EnerCoRD, Plastira street 4, Nea Smyrni, Athens 171 21, Greece, (e-mail: Niko.Iiliadis@EnerCoRD.com). Mario V.F. Pereira is with PSR, Centro Empresarial Rio, Praia de Botafogo, 228 / 1701-A Botafogo CEP: 22250-040, Rio de Janeiro, RJ, Brazil (e-mail: mario@psr-inc.com). Panos M. Pardalos is with University of Florida, Department Indus- trial & Systems Engineering, 32611 Gainesville, FL, USA (e-mail: parda- los@ufl.edu). TABLE I SYMBOLS USED FOR BOTH MODELS:VARIABLES AND DATA Symbol Type Unit Meaning C PP tj (ξ) stoch. data e/MWh cost for power production at thermal plant j at stage t P CO2,bm t (ξ) stoch. data e/ton price for buying CO2 emis- sion allowances via a trad- ing market at stage t P CO2,sm t (ξ) stoch. data e/ton price for selling CO2 emis- sion allowances via a trad- ing market at stage t Pt (ξ) stoch. data e/MWh price for selling power at stage t G WP tw (ξ) stoch. data MWh generated power by wind turbine w in stage t A ti (ξ) stoch. data m 3 water inflow in hydro reser- voir i during stage t Dt det. data MWh power demand at stage t ρ i det. data MWh/ (m 3 /sec) power coefficient for hydro plant i B j det. data e/ton CO2 emissions per MWh produced at thermal plant j C CO2,f det. data e/ton CO2 emission fine/cost for exceeding the CO2 emis- sion allowance C CO2,p det. data e/ton cost per ton CO2 emission certificate for switching to cleaner technology E CO2,a det. data ton CO2 emission allowance per annum g tj variable MWh power generation of ther- mal plant j in time stage t e CO2,bm t variable tons CO2 emissions allowances bought in a trading market e CO2,f t variable tons CO2 emissions allowances ‘bought’ via fines e CO2,sm t variable tons CO2 emissions allowances sold in a trading market e CO2,p t variable tons CO2 emissions allowances ‘bought’ via a project from a country with no Kyoto target v ti variable m 3 water reservoir level of hy- dro plant i at the end of stage t u ti variable m 3 water used for power gen- eration of hydro plant i in stage t s ti variable m 3 water spillage for hydro plant i in stage t