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Electricity prices in a mixed thermal and hydropower system

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  • Hoel, Michael

    ()
    (Dept. of Economics, University of Oslo)

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    Abstract

    When a monopolistic hydro producer interacts with a competitive thermal fringe, the short-run revenue function of the hydro monopolist is non-concave. This implies that even if the demand function is stationary, equilibrium prices may fluctuate through the year. For given capacities, both hydro and thermal producers are better off under such an outcome than under the competitive outcome with constant prices, while consumers are worse off. Prices may fluctuate through the year also in the long-run equilibrium where capacities are endogenous. In such an equilibrium the hydropower monopoly will get a lower profit than it would have gotten had it been a price taker.

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    File URL: http://www.sv.uio.no/econ/english/research/memorandum/pdf-files/2004/Memo-28-2004.pdf
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    Bibliographic Info

    Paper provided by Oslo University, Department of Economics in its series Memorandum with number 28/2004.

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    Length: 31 pages
    Date of creation: 29 Nov 2004
    Date of revision:
    Handle: RePEc:hhs:osloec:2004_028

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    Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
    Phone: 22 85 51 27
    Fax: 22 85 50 35
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    Web page: http://www.oekonomi.uio.no/indexe.html
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    Related research

    Keywords: Electricity prices; Hydropower;

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    References

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    1. Spear, Stephen E., 2003. "The electricity market game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 300-323, April.
    2. Newbery, David M., 2002. "Problems of liberalising the electricity industry," European Economic Review, Elsevier, vol. 46(4-5), pages 919-927, May.
    3. Michael Hoel & Finn R. Førsund, 2004. "Properties of a Non-Competitive Electricity Market Dominated by Hydroelectric Power," Working Papers 2004.86, Fondazione Eni Enrico Mattei.
    4. Crampes, C. & Moreaux, M., 2001. "Water resource and power generation," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 975-997, May.
    5. Paul L. Joskow, 2001. "California's Electricity Crisis," Oxford Review of Economic Policy, Oxford University Press, vol. 17(3), pages 365-388.
    6. Garcia, Alfredo & Reitzes, James D & Stacchetti, Ennio, 2001. "Strategic Pricing when Electricity is Storable," Journal of Regulatory Economics, Springer, vol. 20(3), pages 223-47, November.
    7. Paul Joskow & Edward Kahn, 2001. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," NBER Working Papers 8157, National Bureau of Economic Research, Inc.
    8. Eirik S. Amundsen & Lars Bergman, 2002. "Will Cross-Ownership Re-Establish Market Power in the Nordic Power Market?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 73-95.
    9. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
    10. Amundsen, E.S. & Bergman, L., 2000. "Will Cross-Ownership Reestablish Market Power in the Nordic Power Market?," Norway; Department of Economics, University of Bergen 1900, Department of Economics, University of Bergen.
    11. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
    12. Stefan Ambec & Joseph Doucet, 2003. "Decentralizing hydro power production," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 587-607, August.
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