Impacts of emission trading schemes on GENCOs’ decision making under multimarket environment

The implementation of Emission Trading Schemes (ETS) in the electricity supply industry has driven generation companies (GENCOs) to put efforts to reduce their produced emissions. Under a multimarket environment, a GENCO generates electricity subject to physical, fuel and environmental constraints. Separate and evolving research efforts are currently shaping electricity market, fuel market and carbon market without paying adequate attentions to how each market affects the others, though the markets have overlapping goals with respect to the global economic and environmental benefits. Under this background, this paper investigates the impacts of carbon policies on a GENCO's decision making under multimarket environment. A dynamic decision making model is proposed to deal with the multimarket trading problem for a GENCO during each trading period. Differential Evolution (DE) algorithm is employed to solve the multi-period optimization problem for each time interval. Comparisons between different scenarios demonstrate the economic and environmental influences of different policies on a GENCO. With the proposed model, a GENCO can make a rational tradeoff between profit making and emission reduction under the three interactive markets environment. Policies defining the three interactive markets can accurately reflect the intended goals such as reducing emissions, promoting renewable and keeping electricity cost at a reasonable level.

► A two-stage optimum decision making model for GENCOs is developed. ► Emissions constraint and emission allowance trading have been incorporated. ► Uncertainties in electricity market, carbon market and fuel market are considered. ► For different market mechanisms, GENCOs’ behaviors and overall profits are analyzed. ► With the proposed model, GENCOs can make a good tradeoff between profit-making and emission reduction.