Simulation of the European Electricity Market and CCS Development with the HECTOR Model

FCN Working Paper No. 6/2009

32 Pages Posted: 4 Jun 2010

Date Written: November 1, 2009

Abstract

In this paper we introduce HECTOR, a new and advanced long-term electricity market model that simulates market behavior bottom-up through opportunistic, variable cost-based bidding of individual power plants into auction-based national markets with international interconnection capacities. Unlike most other approaches, we implement the objective function on an hourly level. This allows for a reduction of the solution space, and enables a higher modeling resolution, including opportunistic bidding behavior of power plants based on expected supply scarcity, and ex-post investment decisions based on NPV considerations. The model simulates the electricity markets of 19 European countries, with over 400 groups of power plants, and is able to closely approximate historic electricity prices. The average base load price computed by the model for 2006-2008 and across the largest regions in Europe is 54.5 €/MWh, compared to 54.8 €/MWh in reality, using 2005 as training period. In a projection until 2040, we find that conventional fossil fuel-fired power plants are replaced both by renewable energy technologies and large quantities of CCS, the latter of which almost fully utilize available CO2 storage capacities in some of the regions studied.

Keywords: Electricity Market, Simulation, Model, Forecast, CCS

JEL Classification: C63, O30, Q47

Suggested Citation

Lohwasser, Richard and Madlener, Reinhard, Simulation of the European Electricity Market and CCS Development with the HECTOR Model (November 1, 2009). FCN Working Paper No. 6/2009. Available at SSRN: https://ssrn.com/abstract=1620491 or http://dx.doi.org/10.2139/ssrn.1620491

Richard Lohwasser

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Reinhard Madlener (Contact Author)

RWTH Aachen University ( email )

School of Business and Economics / E.ON ERC
Mathieustraße 10
Aachen, 52074
Germany
+49 241 80 49 820 (Phone)
+49 241 80 49 829 (Fax)

HOME PAGE: http://www.eonerc.rwth-aachen.de/fcn

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