Potential impacts of emission concerned policies on power system operation with renewable energy sources Yajvender Pal Verma a,⇑ , Ashwani Kumar b a Electrical & Electronics Engineering Department, UIET, Panjab University, Chandigarh 160 014, India b Department of Electrical Engineering, National Institute of Technology, Kurukshetra, India article info Article history: Received 27 June 2011 Received in revised form 23 November 2011 Accepted 10 March 2012 Available online 26 September 2012 Keywords: Emission trading Renewable purchase obligation (RPO) Emission allowances Bilateral contract abstract Electricity sector is considered as major source of green house gas emission. A huge opportunity exists within this sector to cut down the emission and contribute significantly to mitigate the climate change. The Emission Trading Schemes (ETSs) and inception of renewable energy sources (RESs) into the gener- ation mix contribute to the reduction of emission and impact electricity market operation. This paper investigates the impact of emission concerned policies, such as: (a) fixed emission quota; (b) cap and trade; and (c) bilateral contract commitments; on the operation of power system. The renewable support mechanisms, such as renewable purchase obligation (RPO) and feed-in-tariff are incorporated so as to account the relative costs of cleaner and renewable generation technologies. Each generator is allocated certain amount of emission allowances, which they can use to cover emission during energy generation. The electricity and emission prices are obtained from the interaction of carbon and energy market. It is observed that, the renewable support mechanisms affect the generating and emission trading schedule of independent power producers (IPPs). They help them meet their emission targets and increase overall welfare. A balance between the emission regulation and renewable support mechanisms is essential, otherwise they make each others effect redundant. The performance of the proposed model is demon- strated by its implementation on a five generators system. Ó 2012 Elsevier Ltd. All rights reserved. 1. Introduction Global climate change is the greatest environmental concern worldwide. The most important and critical issue is to cut down the level of emission of greenhouse gases (GHGs) by adopting differ- ent measures limiting harm to the environment. Among various ini- tiatives taken, the United Nations Framework Convention on Climate Change (UNFCCC) aims at stabilizing carbon dioxide emis- sions at sustainable level (1990 levels). The Kyoto Protocol puts leg- ally binding emission level on Annex B countries. It provides market based mechanisms as cost effective ways of doing that. These mech- anisms are: (a) Clean Development Mechanism (CDM); (b) Joint Implementation (JI); and (c) emission trading. The Clean Develop- ment Mechanism (CDM), as a market mechanism allows emis- sion-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to 1 tonne of car- bon dioxide. These CERs can be traded and sold, and used by indus- trialized countries to meet a part of their emission reduction targets under the Kyoto Protocol. It is argued that the mechanism stimu- lates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction limitation targets. Under JI, firms can investment in any emission reduction project based in any industri- alized country. Thus, the firm investing in such project can earn additional emission allowances. In emission trading, the country puts limit on carbon allowances and these allowances can be either used or traded in the emission market. The specified amount of emission allowances are further allocated to different installations and generators. The main advantage of this mechanism is to reduce the cost of emission reductions by allowing those installations with lower abatement costs to sell the allowances to the rest of installa- tions [1,2]. Electricity supply industry worldwide has been identified as a major source of greenhouse gas emissions. In Europe, electric power generation accounts for one-third of the CO 2 emission; in Netherlands this is more than 50% of the sectors under carbon emission trading (CET). In India, more than 45% generation of emis- sion is from electric power sector. A huge opportunity exists within this sector to cut down the emission and contribute significantly to mitigate the climate change [3]. Consequently, many countries have started implementing ETS to reduce the emission. Though, emission trading is the least cost alternative to reduce emission, but there are reasons to incorporate other measures as well. The Emission Trading Schemes and support mechanisms for renewable 0142-0615/$ - see front matter Ó 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.ijepes.2012.03.053 ⇑ Corresponding author. Tel.: +91 172 2534990; fax: +91 172 2547986. E-mail addresses: yajvender_verma@yahoo.com (Y.P. Verma), ashwa_ks@yahoo. co.in (A. Kumar). Electrical Power and Energy Systems 44 (2013) 520–529 Contents lists available at SciVerse ScienceDirect Electrical Power and Energy Systems journal homepage: www.elsevier.com/locate/ijepes