Effect of regulation on power-plant operation and investment in the South East Europe Market: An analysis of two cases

• We analyse two coal-fired power plant projects based in Croatia and BiH.
• We examine the challenges these two projects will face prior to construction.
• We examine the current regulatory frameworks of the two countries.
• We provide results of the electricity market simulation.
• We find that a better regulatory system provides for a safer return of investment.

This paper analyses the differences between investment decisions for coal-fired power plants in Croatia and in Bosnia and Herzegovina (BiH). The long-run marginal cost (LRMC) of each plant is calculated based on a technical analysis that accounts for the important influences on overall project costs by combining a mathematical model and a simulation model. The former was used to calculate annual costs and the latter to predict power plant performance on the electricity market. This research offers insights about potential risks associated with power-plant investment with a particular focus on the regulatory framework and the relevance of participation in the European Union Emissions Trading Scheme (EU ETS) for costs, prices, and environmental impacts.