Introduction of CO2 Emission Certificates in a Simplified Model of the Benelux Electricity Network with Small and Industrial Consumers

This paper addresses a problem arising from the introduction of the Emission Trading System in Europe (EU-ETS). Electricity intensive industrial consumers are currently facing a high price of electricity, which affects their competitiveness and may force them to leave Europe. We explore the possibility of developing special contracts, which would limit the impact of CO2 prices on electricity intensive industrial consumers. The models presented reveal several innovative aspects to the extent that it involves two pricing mechanisms. One of them introduces a perfect competition market where all consumers are price-takers and purchase electricity at a price based on the short run marginal costs. The other mechanism applies average cost prices to large industrial consumers. The analysis of these problems is dealt with simulation models applied to the Northwestern Europe market. The mathematical optimization models developed are implemented using the GAMS modeling system.