Electricity Markets Simulation An application to the Iberian Electricity Market - MIBEL Nuno Domingues 1 , Jorge de Sousa 2 and Pedro F. Correia 3 (1) ISEL, Instituto Superior de Engenharia de Lisboa ndomingues@deea.isel.ipl.pt (2) ISEL, Instituto Superior de Engenharia de Lisboa, and FEUNL, Faculdade de Economia da Universidade Nova de Lisboa jsousa@deea.isel.ipl.pt (3) Instituto Superior Técnico pfcorreia@ist.utl.pt Keywords : Electricity markets integration, Sensitivity analysis, Market Clearing Price Abstract A liberalised market is a market where customers can freely choose their supplier. This market model came with the introduction of competition into non-competitive regulated markets. In a non-competitive environment, supply and prices are regulated, while in a liberalized market regulation aims at avoiding the abuse of market power. In the case of electricity, the starting point was the rigorous analysis of the sectors of the industry which were natural monopolies and the identification of the activities where the barriers to entry were such that no competition will develop naturally. It had been assumed in former market organization that the whole of the electricity industry was a natural monopoly which led to the acceptance of vertically integrated monopoly supply utilities. On a closer inspection it was found that only certain activities were natural monopolies, in particular the transmission and distribution networks. This discovery led reformers to search for mechanisms of introducing competition wherever this seemed possible. Bearing in mind the upcoming Iberian Electricity Market – MIBEL, we studied the sensitivity of the Market Clearing Price to changes in the production inputs, such as coal, natural gas and fuel. 1. Introduction Parallel to the privatization process of electricity utilities and the liberalization of the European electricity markets, the the Portuguese and Spanish markets engaged in a process of integration which will lead to the upcming Iberian Electricity Market (MIBEL). In both countries it has been introduced changes in the production, transmission and distribution of electricity sectors with the aim of achieving a legally, socially and economically unified market. 1.1 The liberalization process in Portugal The market opening corresponds to the share of the national electric energy costumers potentially subjected to the competition and market mechanisms, integrating the global consumption of the eligible customers and the share of energy needs that the entailed deliverers can acquire in the scope of this free regime. At present, eligible customers are