EMBEDDING EXTERNALITIES IN ELECTRICITY PRICES – THE NEED OF THE HOUR

We are arguing that in order to reduce climate change, governments should adopt legislation requiring generators and independent power producers (IPPs) to provide system operators with energy offer/bidding prices, incremental heat rates and cost curves, and emission factors of important pollutants. The system operator then include environmental costs in the incremental cost curve of energy/bid price when making the merit order for dispatch Less efficient, high-emitting fossil fuel power plants (such as coal-fired plants) lose slots in the merit order and have their annual operational hours reduced in an economic dispatch modelAs a result, emissions are lowered, and high-emitting power plants’ profitability is diminished. The generation mix in the electricity market will be completely altered, and the entire electricity market scenario will permanently shift to cleaner energy. To demonstrate the concept, the cost and environmental performance of some selected fossil-fuel technologies are used to demonstrate the concept to show how the merit order changes completely when environmental costs are added to their marginal energy costs.