Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact
AbstractWe consider electricity generation industries where thermal operators imperfectly compete with hydro operators that manage a (scarce) water stock stored in reservoirs over a natural cycle. We explore how the exercise of intertemporal market power affects social welfare and environmental quality. We show that, as compared to the outcome of spot markets, long-term contracting either exacerbates or alleviates price distortions, depending upon the consumption pattern over the water cycle. Moreover, it induces a second-order environmental effect that, in the presence of a thermal competitive fringe, is critically related to the thermal market shares in the different periods of the cycle. We conclude by providing policy insights.
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 628.
Date of creation: 13 Jul 2010
Date of revision:
Publication status: Published in Utilities Policy, vol.�19, n°1, janvier 2011, p.�20-32.
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Other versions of this item:
- Billette de Villemeur, Etienne & Vinella, Annalisa, 2011. "Long-term contracting in hydro-thermal electricity generation: Welfare and environmental impact," Utilities Policy, Elsevier, vol. 19(1), pages 20-32, January.
- de Villemeur, Étienne & Vinella, Annalisa, 2010. "Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact," TSE Working Papers 10-182, Toulouse School of Economics (TSE).
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
- Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-ENE-2010-07-31 (Energy Economics)
- NEP-ENV-2010-07-31 (Environmental Economics)
- NEP-REG-2010-07-31 (Regulation)
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