Market Role, Profitability, and Competitive Features of Combined Heat and Power Plants in the Swedish Future Electricity Market with High Renewable Integration

Abstract: The Swedish energy market is currently undergoing a transition away from fossil fuels to renewable energy sources, including a potential phase-out of nuclear power. The combination of a phase-out with the expansion of intermittent renewable energy leads to the issue of increased fluctuations in electricity production. This opens opportunities for other types of dispatchable power technologies, such as combined heat and power. However, in order to be effective on the market, long-term profitability is required. In this study the potential market role and profitability of combined heat and power plants in two future energy scenarios is investigated. The cogeneration of heat and power is already today a prominent technology given the colder climate in Sweden. Short-term optimization is used to simulate combined heat and power plants in the Nordic electricity market Nord Pool. The results show that most plants are profitable in the two scenarios, while plants with higher power-to-heat ratios have increased profits in fluctuating markets if have flexible production options. Common for all investigated plants is the necessity of an appropriately designed heat capacity since heat sales is the main driver for profitability. Combined heat and power plants could play an important role as a balancing power capacity, especially in lower demand weeks when there is flexible power and heat output levels available. The regional results show that additional dispatchable capacity is required during cold winter weeks to avoid recruitment of power reserves in these two scenarios.