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Substantial R &D efforts are currently directed towards the development of combined heat and power (CHP) systems that automatically and seamlessly connect to the power grid. In this paper we develop a real options model to assess the impact that the operational flexibility characterizing such systems will have on the optimal timing and capacity associated with investments in CHP plants. We take the viewpoint of a manufacturer operating in an energy-intensive industry who contemplates investing in CHP. We discuss and compare investments in two types of CHP systems: a standard one that is operationally rigid and a technologically advanced one that is operationally flexible. The interaction between temporal and operational flexibility under uncertainty and irreversibility is central to our analysis. We show that operational flexibility guarantees earlier investment but has an ambiguous effect in terms of capacity. In particular, when operational flexibility is very valuable the potential investor is opting for investing in a plant with larger productive capacity. The potential investor chooses a smaller CHP unit if otherwise. A numerical exercise calibrated using data from the Italian pulp and paper and electricity industries complements our theoretical analysis. [ABSTRACT FROM AUTHOR]

We consider an n-player non-cooperative game where the payoff function of each player follows a multivariate distribution. This formulation is adopted to model a zonal electricity market in which generators operate by running conventional and renewable-based plants. The players in the market compete as in a Cournot model. We formulate this problem as a chance-constrained game by defining the payoff function of each player using a chance constraint. A full empirical analysis has been conducted on the Italian electricity market to test the impact of renewable generators in the light of decarbonization of the market and the impact of the volatility of the cost of conventional plants, mainly related to the volatility of gas prices. We finally test the robustness of the chance constraint formulation with an out of sample analysis. [ABSTRACT FROM AUTHOR]

The online version of the original article can be found at https://doi.org/10.1007/s10479-023-05273-xCorrection to: Annals of Operations Researchhttps://doi.org/10.1007/s10479-023-05273-xThis correction is published as the text published under Statements and Declaration section was mismatched due to proofing error.Original article has been corrected.Publisher's NoteSpringer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.By Dimitrios Zormpas and Giorgia OggioniReported by Author; Author [Extracted from the article]

The deregulation of electricity markets in Europe has deeply changed the organization of this sector. Vertically integrated generating companies have been unbundled to create competition and to increase the competitiveness of electricity markets. Directive 96/92/EC was issued by the European Commission to liberalize electricity markets and to pave the way for the creation of the Internal Electricity Market. In particular, this Directive aimed at promoting the competition in the activities of electricity generation and wholesale through the creation of a 'marketplace' and the maximization of transparency and efficiency. Competition in European day-ahead electricity markets has been established through auction markets where electricity producers and consumers offer/bid prices and volumes. This paper suggests a dynamic equilibrium model for a system of auction markets linked by transmission lines and subject to energy balance and transmission constraints, such as those characterizing restructured electricity markets. This model is treated as a system of variational inequalities with arbitrary monotone mappings. An inexact splitting type method is proposed to find its solution. Numerical experiments are conducted on the Italian day-ahead electricity market. [ABSTRACT FROM AUTHOR]

'Market Coupling' is currently seen as the most advanced market design in the restructuring of the European electricity market. Market Coupling, by construction, introduces what is generally referred to as an incomplete market: it leaves several constraints out of the market and hence avoids pricing them. This may or may not have important consequences in practice depending on the case on hand. Quasi-Variational Inequality problems and the associated Generalized Nash Equilibrium can be used for representing incomplete markets. Recent papers propose methods for finding a set of solutions of Quasi-Variational Inequality problems. We apply one of these methods to a subproblem of market coupling namely the coordination of counter-trading. This problem is an illustration of a more general question encountered, for instance, in hierarchical planning in production management. We first discuss the economic interpretation of the Quasi-Variational Inequality problem. We then apply the algorithmic approach to a set of stylized case studies in order to illustrate the impact of different organizations of counter-trading. The paper emphasizes the structuring of the problem. A companion paper considers the full problem of Market Coupling and counter-trading and presents a more extensive numerical analysis. [ABSTRACT FROM AUTHOR]

The inception of the emission trading scheme in Europe has contributed to power price increases. Energy intensive industries have reacted by arguing that this may affect their competitiveness and will induce them to leave Europe. Taking up a proposal of these industrial sectors, we explore the possible application of special contracts, where electricity is sold at average generation cost to mitigate the impact of CO2 cost on power prices. The model supposes fixed generation capacities. We first consider a reference model representing a perfectly competitive market where all consumers (industries and the rest of the market) are price-takers and buy electricity at short-run marginal cost. We then change the market design by assuming that energy intensive industries pay power either at a regional or at a zonal average cost price. The analysis is conducted with simulation models applied to the Central Western European power market. The models are implemented in GAMSIPATH. [ABSTRACT FROM AUTHOR]

We propose a spatial equilibrium problem for a pulp and paper supply chain network under the Emission Trading System (ETS) and the circular economy principles. The developed closed-loop supply chain model, based on the variational inequality theory, accounts for the forest deployment and the production of paper using both virgin pulp and recyclable paper waste in an area that is subject to the ETS. In addition, it considers the exchanges of virgin pulp, paper, recyclable and not-recyclable paper waste between this regulated area and geographical zones where no environmental policies apply. The aim of this paper is to investigate the ETS impacts on the pulp and paper industries located in an environmentally regulated area in terms of operating costs, production and trading volumes of the aforementioned commodities, and emissions generated. The case study focuses on the European pulp and paper companies, which are among the energy-intensive industries deemed to be exposed to the carbon leakage risk as a consequence of the ETS application. Sensitivity analyses on the carbon price value and on the trade flexibility are conducted. Our results show that the ETS implies additional costs for the European pulp and paper companies and induces them to resort more on imports of virgin pulp and paper from not-regulated zones. [ABSTRACT FROM AUTHOR]