Young Scientist’s 1st International Baku Forum Shahriyar Nasirov Universidad Del Pais Vasco ( Spain) How Entrance of Renewable Energy Sources Affected the Strategic Behavior of Main Electricity Companies in Spain: Empirical Observations

MARKET ARCHITECTURE Ordinary Regime Producers Special Regime Producers DAY AHEAD INTRA DAY AHEAD BILATERAL CONTACTS  The process of liberalization in the Spanish electricity industry began in 1997  OMIE is the market operator and it is responsible for the economic management and bidding process  Red Eléctrica de España (REE) directs most of the transmission network in Spain  The integrated Portuguese–Spanish market, generally known as Iberian Electricity Market (MIBEL), was founded in 1999 and effective functioning began in July 2007  Endesa (EN), Iberdrola (IB), Unión Fenosa /Gas Natural own the main conventional plants in the country

SPEACIAL REGIME 3  It has been introduced in Spain in 1994 by RD 2366/1994  In Spain CNE is the market regulator and it is in charge of operations under the Special regime  There were two ways to sell electricity generated from RES on the Spanish electricity market:

SPEACIAL REGIME 4

Effect of Special Regime

EMPIRICAL OBSERVATIONS : TRADITIONAL METRICS- CR and HHI Index  Methodology  Results  The HHI is calculated by taking the sum of the squares of the respective market participant’s market shares  The Concentration Ratio is the percentage of market share of the largest n companies in the industry

EMPIRICAL OBSERVATIONS: RESIDUAL DEMAND ELASTICITY  RDE examines bidding strategy of generator and it is based on the relationship between the elasticity of the residual demand on the SMP Methodology: Step 1: Build the Aggregate Demand schedule,, and Aggregate Supply schedule,, for each hour depending existence or absence of congestions. Step 2: We take two firms, Endesa and Iberdrola in Spain which owns the majority of generating capacities. Thus, we have three supply schedules: {S EN, S IB }. Congestions in the network NO congestions in the network Example: h=6 am, 08/04/09 h=22 pm, 08/04/09  In a competitive market, a company will face a highly elastic residual demand curve and will have no ability to raise prices above the competitive level via any amount of withholding.

 Methodology  Results Step 3: For each generator, we find the supply of the rivals that is S -k denotes the aggregate supply of all the firms but k. Hence, we have {S -EN, S -IB }. Step 4: Obtain the residual demands for each generator:Thus it is the market demand function minus the quantity supplied by other firms at each price. Step 5: EMPIRICAL OBSERVATIONS: RESIDUAL DEMAND ELASTICITY

CONCLUSION Both methods ( traditional and alternative methods) showed that market became less evident in terms of market power abuse from 2005 to 2009 Each methods have own limitations and results show the potential of dominant firms to exercise market power, not actual Concentration has been falling considerably due to new entrants under RES especially Wind capacity