Abstract
This paper considers a risk-neutral energy supplier who operates an electricity plant in an uncertain demand market. To characterize the impact of carbon emission quota and emergency supply cost of coal electricity, we first consider four different cases, (1) traditional energy without carbon emission restriction; (2) traditional energy with carbon emission quota; (3) mixed energy (both traditional and renewable energy) without carbon emission restriction, and (4) mixed energy with carbon emission quota, to find the optimal renewable energy investment level and coal inventory mechanism for an energy supplier. Then, through the analysis we derive the resulting equilibriums: coal inventory for electricity generation and the investment of renewable energy capacity. By comparing the performances under different scenarios, we find that (a) renewable energy establishment can mitigate the depression of carbon emission constraint, (b) the energy supplier can obtain positive benefits from optimal mixed energy strategy if the additional emergency cost of traditional energy is not too high, and (c) the optimal renewable energy capacity level is decreasing in the carbon emission quota. Our numerical simulations imply that the impact of additional emergency cost to the profit difference between mixed energy strategy and traditional energy strategy is mediated by carbon emission quota.
Highlights
With the improvement of environmental protection awareness, the issue of greenhouse gas emission is getting more and more attention [1]
This paper studies the investment to renewable energy capacity in the presence of emergency cost of coal supply and carbon emission quota, which is widely used by the government for controlling the greenhouse gas emission
By analyzing four cases, (1) traditional energy without carbon emission restriction; (2) traditional energy with carbon emission quota; (3) mixed energy without carbon emission restriction and (4) mixed energy with carbon emission quota, we arrive at the following outcomes
Summary
With the improvement of environmental protection awareness, the issue of greenhouse gas emission is getting more and more attention [1]. Taking emergency supply cost of coal electricity into consideration, we design the renewable energy capacity investment level and coal inventory mechanism for a traditional energy supplier in an uncertain demand environment. We study the impact of carbon emission quota, which plays a mediator role in the impact of additional emergency cost to the profit difference and find that the energy supplier can benefit from optimal renewable energy investment in the presence of carbon emission quota.
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