The Impact of Kyoto and Post-Kyoto CO2 Prices on the Iberian Electricity Market Agents Decisions

Abstract

The main purpose of this paper is the modelization and the analysis of the impact of the CO2 prices expected for the Kyoto and Post-Kyoto periods on the Iberian electricity market (MIBEL) decisions of their agents. It is expected that the insertion of a price to the CO2 emissions on electric utilities will change the technological combination currently used to generate electricity, as the recent generation structure was mainly intended to secure supply according to marginal costs of production (without the CO2 balance), maximizing each companies profits. It is also expected that CO2 prices will more than double in the Post-Kyoto period. Further, the integration of Portugal and Spain in a single and liberalized market may as well change the generation scheduling, and generate, in coordination with CO2 pricing, important impacts on the value of the different generation technologies, and even on the benefits of integration as a whole. In this paper we analyze, through simulating, how the interaction between CO2 pricing in Kyoto and Post-Kyoto levels and the starting of MIBEL may re-shape the landscape of electricity generation, looking at clearing prices and the value of the different technologies, and how both countries are likely to be affected by it.