Analysis of Impacts of Carbon Prices on the Italian Electricity Market using a Supply Function Equilibrium Model

The European Union Emissions Trading Scheme (EU ETS) is one of the policies introduced across the European Union (EU) to help it meet its greenhouse gas emissions reduction target under the Kyoto Protocol. The prices of CO(2) that emerge from the EU ETS would bring significant implications in the electricity industry in Europe, which would be interesting to examine. This paper presents an oligopolistic power market model for analyzing the possible short term impacts of CO(2) prices that emerge from the EU ETS on the Italian electricity market The electricity market is modeled using a supply function equilibrium (SFE) approach. A coevolutionary genetic algorithm (GA) is used to calculate the oligopolistic price equilibria of the SEE model