Assessing the Value of Subsidizing Large CHP Plants

This paper explores the impact of large natural-gas-fired combined heat and power plants on electricity price in the Latvian bidding area of the Nord Pool power exchange. While these power plants sell the electricity generated in an energy-only market, they also benefit from state aid in the form of capacity payments. Therefore, the financial feasibility of their continued operation with varying degrees of support is also explored. The case study is based on the two largest cogeneration plants in Latvia which are both recipients of capacity payments. It was found that the participation of these plants in the day-ahead market can have a limiting effect on the electricity price in the Latvian bidding area; however, the support awarded to both power plants can be reduced while still maintaining their competitiveness in the energy-only market.