Social welfare analysis of the iberian electricity market accounting for carbon emission prices

In this study, the authors analyse the social welfare impact of the integration of Portugal and Spain in the Iberian electricity market (MIBEL), taking into account the CO₂ price for emissions trading. They model the impact of emissions trading on the daily clearing prices and generation scheduling, and its effects on the benefits of integration as a whole. They compare the impact of market integration in Portugal and Spain and show that the welfare impact of the MIBEL is dependent on the CO₂ prices. From their analysis, they conclude high CO₂ prices lead to a change in the merit order. Moreover, natural gas is the generation technology that most benefits from transmission constraints and from high CO₂ prices, as in the base case it is mainly used as a peak technology. The authors have also found that increases in the CO₂ prices do not lead to higher profits. Overall, the introduction of the MIBEL will increase social welfare by reducing generation costs and prices.