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Production cost: The major component of variable production cost are fuel prices at the p l a n t a n d c o s t o f C O 2 e m i s s i o n a l l o w a n c e s , w h i c h a r e d e t e r m i n e d b y t h e p r i c e o f a l l o w a n c e (assumed to be 10 /t CO2) and the emissions coefficient of the different technologies. Production cost can then be computed based on the efficiencies of each technology30. No information has been found for variable production cost of nuclear power plants,. it is assumed to be given by 5/MW h. A proxy for final production cost of electricity for all different technologies in 2006 is reported in table 1. s

Figure 6: Fitting the pairs of production cost and investment cost to the following hyper-

bolic function: k(c) =

635.2 c 0 . 4 7

34.5.

Investment Cost: Since we analyze investment incentives based solely on one year, we break down investment cost to annuities.31 In order to take construction times into account we consider investment for the years 1995/2000. We furthermore assume perfect foresight, i.e. all cost components have been predicted accurately by the firms at the time of their investment decision. The relevant annuities are determined based on investment cost and annual fixed cost of running the plant. These values are corrected by availability of each

technology, we take an average availability of 94%.32 See 2006 GTW Handbook or EWI and Prognos (2005). Based on a financial horizon of 20 30 31 The results will thus only yield a benchmark for current profitability of investment. Provided, however, that yearly demand is increasing over time (and that strategic timing of investment is not an issue) our procedure should yield accurate predictions, even though once installed capacities cannot be removed the

subsequent year. 32Compare VGB Powertech (2006).

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