Optimal Operational Strategy for Power Producers in Korea Considering Renewable Portfolio Standards and Emissions Trading Schemes

Abstract

Globally, many countries are experiencing economic growth while concurrently increasing their energy consumption. Several have begun to consider a low-carbon energy mix to mitigate the environmental impacts caused by increased fossil fuel consumption. In terms of maximizing profits, however, power producers are not sufficiently motivated to expand capacity due to high costs. Thus, the Korean government initiated the Renewable Portfolio Standard (RPS), an obligation to generate a certain proportion of a producer’s total generation using renewable energy for power producers with capacities of 500 MW or more, and the Emissions Trading Scheme (ETS), designed to attain a carbon emissions reduction goal. We propose a mathematical model to derive the optimal operational strategy for maximizing power producer profits with a capacity expansion plan that meets both regulations. As such, the main purpose of this study was to obtain the optimal operational strategy for each obligatory power producer. To that end, we defined a 2 × 2 matrix to classify their types and to conduct scenario-based analyses to assess the impact of major factor changes on solutions for each type of power producer. Finally, for the power generation industry to operate in a sustainable and eco-friendly manner, we extracted policy implications that the Korean government could consider for each type of power producer.