Fuel-dependent pricing of IPP's electricity under limitation of CO/sub 2/ emission in electric power industry of Japan

In Japan, entry of independent power producers (IPP's) to an electric power market was authorized in 1995. Many IPP's use coal or residual oil for the economical electric power generation. However, because of high carbon intensity of these fuels, the large-scale entry of such IPP's might influence the reduction of CO/sub 2/ emission in Japan. In this paper, we evaluate fuel- and capacity-dependent break-even cost of IPP's electricity viewed from the generation cost of the electric power utility. The evaluation is based on the optimum generation mix, where the limitation of total CO/sub 2/ emission from the electric power industry is exogenous parameters. Then, we proposes the fuel-dependent pricing of IPP's electricity considering the entry probability of IPP's into the electric power market.