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Dynamic Competition in Electricity Markets: Hydroelectric and Thermal Generation

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Author Info

  • Talat S. Genc

    ()
    (Department of Economics,University of Guelph)

  • Henry Thille

    ()
    (Department of Economics, University of Guelph)

Abstract

We study competition between hydro and thermal electricity generators that face uncertainty over demand and water flows where the hydro generator is constrained by water flows and the thermal generator by capacity. We compute the Feedback equilibrium for the in?nite horizon game and show that there can be strategic withholding of water by the hydro generator. When water inflow is relatively low, however, the hydro generator may use more water than efficient as it faces an inefficiently low shadow price of water in this case. The inefficiency of the market outcome is tempered by the capacity constraints: for a large range of possible thermal production capacities and water flow levels, welfare loss under the duopoly market structure is much less than would occur in the absence of water and capacity constraints.

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File URL: http://www.uoguelph.ca/economics/sites/uoguelph.ca.economics/files/2011-04.pdf
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Bibliographic Info

Paper provided by University of Guelph, Department of Economics and Finance in its series Working Papers with number 1104.

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Length: 23 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:gue:guelph:2011-04.

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Keywords: Electricity markets; Electricity markets; Hydroelectricity; Imperfect Competition;

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  1. Thille, Henry, 2006. "Inventories, market structure, and price volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1081-1104, July.
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