Optimizing generation Portfolio for emission control in Europe's utilities

European utilities in the recent times is going through a phase marked by notable changes. The market is opening up for competition; utilities are unbundling leading to the separation of wholesale retail and distribution sectors. Environmental and climate change requirements have gained significant importance and has considerable impact on the way utilities will be run and operated. The Kyoto Protocol mandates reduction of greenhouse gases by at least 5 percentages from the level of 1990 by (2008-2012) and the 20-20-20 plan aims to reduce 20% of greenhouse gases by 2020, compared with 1990 levels. The paper discusses the key issues and adopts a holistic view for a generation utility. The environmental impact on the Portfolio and merit order ranking is taken into account it goes into the various portfolio optimization options that a generation utility has to address to meet the environmental challenges under various regulatory regimes such as EU ETS and Kyoto Protocol. In the next stage, it highlights couple of salient features such as Financial Transmission Right (FTR), Holding Period Returns (HPR) and Efficient Frontier and their effective use in negotiating emission challenge. The paper suggests a methodology to the generators for optimizing its operations and in conclusion, will highlight key options that may be adopted by the European utilities and the suggested way forwards.