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A Mixed Complementarity Model of Hydro-Thermal Competition in the Western U.S

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  • Bushnell, James

Abstract

This paper presents a modeling framework for analyzing competition between multiple firms that each possess a mixture of hydroelectric and thermal generation resources. Based upon the concept ofa Cournot oligopoly with a competitive fringe, the model characterizes the Cournot equilibrium conditions ofa multiperiod hydrothermal scheduling problem. Using data from the western United States electricity market, this framework is implemented as a mixed linear complementarity model. The results show that some firms may find it profitable to allocate considerably more hydro production to off-peak periods then they would under perfect competition. This strategy is a marked contrast to the optimal hydroschedules that would arise ifno firms were acting strategically. These results highlight the need to explicitly consider profit-maximizing behavior when examining the impact ofre gulatory and environmental policies on electricity market outcomes.

Suggested Citation

  • Bushnell, James, 2003. "A Mixed Complementarity Model of Hydro-Thermal Competition in the Western U.S," Staff General Research Papers Archive 13144, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:13144
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    Cited by:

    1. Chernyavs'ka, Liliya & Gullì, Francesco, 2008. "Marginal CO2 cost pass-through under imperfect competition in power markets," Ecological Economics, Elsevier, vol. 68(1-2), pages 408-421, December.
    2. Michele Fioretti & Jorge Tamayo, 2021. "Saving for a Dry Day: Coal, Dams, and the Energy Transition," Working Papers hal-03389152, HAL.
    3. Matti Liski & Iivo Vehviläinen, 2016. "Gone with the Wind? An Empirical Analysis of the Renewable Energy Rent Transfer," CESifo Working Paper Series 6250, CESifo.
    4. Fabra, Natalia & Toro, Juan, 2005. "Price wars and collusion in the Spanish electricity market," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 155-181, April.
    5. Tómasson, Egill & Hesamzadeh, Mohammad Reza & Wolak, Frank A., 2020. "Optimal offer-bid strategy of an energy storage portfolio: A linear quasi-relaxation approach," Applied Energy, Elsevier, vol. 260(C).
    6. Massol, Olivier & Rifaat, Omer, 2018. "Phasing out the U.S. Federal Helium Reserve: Policy insights from a world helium model," Resource and Energy Economics, Elsevier, vol. 54(C), pages 186-211.
    7. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, vol. 98(1), pages 237-266, March.
    8. Petter Vegard Hansen, 2009. "Inflow Uncertainty in Hydropower Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 189-207, March.
    9. Rangel, Luiz Fernando, 2008. "Competition policy and regulation in hydro-dominated electricity markets," Energy Policy, Elsevier, vol. 36(4), pages 1292-1302, April.
    10. Victor Moutinho & Ant nio Carrizo Moreira & Jorge H. Mota, 2015. "Measuring the Simultaneous Quantity Game in OMEL Spot Electricity Market," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 305-320.
    11. Aitor Ciarreta & María Espinosa, 2010. "Market power in the Spanish electricity auction," Journal of Regulatory Economics, Springer, vol. 37(1), pages 42-69, February.
    12. Komain Jiranyakul, 2015. "Oil Price Volatility and Real Effective Exchange Rate: The Case of Thailand," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 574-579.
    13. repec:hal:spmain:info:hdl:2441/1qif9fqehq930ovnr511k1el4f is not listed on IDEAS
    14. C. Robert Clark & Andrew Leach, 2007. "The Potential for Electricity Market Restructuring in Quebec," Canadian Public Policy, University of Toronto Press, vol. 33(1), pages 1-20, March.
    15. Yihsu Chen & Lizhi Wang, 2013. "Renewable Portfolio Standards in the Presence of Green Consumers and Emissions Trading," Networks and Spatial Economics, Springer, vol. 13(2), pages 149-181, June.
    16. Lewis Evans & Greame Guthrie & Andrea Lu, 2010. "A New Zealand Electricity Market Model: Assessment of the Effect of Climate Change on Electricity Production and Consumption," Working Papers 10_09, Motu Economic and Public Policy Research.
    17. GABRIEL, Steven & SMEERS, Yves, 2005. "Complementarity problems in restructured natural gas markets," LIDAM Discussion Papers CORE 2005037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    18. Moutinho, Victor & Moreira, António C. & Mota, Jorge, 2014. "Do regulatory mechanisms promote competition and mitigate market power? Evidence from Spanish electricity market," Energy Policy, Elsevier, vol. 68(C), pages 403-412.
    19. Haddad, Mohamed S., 2011. "Capacity choice and water management in hydroelectricity systems," Energy Economics, Elsevier, vol. 33(2), pages 168-177, March.
    20. repec:hal:wpspec:info:hdl:2441/1qif9fqehq930ovnr511k1el4f is not listed on IDEAS
    21. Helman, Udi, 2006. "Market power monitoring and mitigation in the US wholesale power markets," Energy, Elsevier, vol. 31(6), pages 877-904.
    22. Arellano, Maria-Soledad & Serra, Pablo, 2007. "A model of market power in electricity industries subject to peak load pricing," Energy Policy, Elsevier, vol. 35(10), pages 5130-5135, October.

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