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Inflow Uncertainty in Hydropower Markets

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  • Petter Vegard Hansen

    ()
    (Statistics Norway)

Abstract

In order to analyse the consequences of uncertainty for prices and efficiency in a hydropower system, we apply a two-period model with uncertainty in water inflow. We study three different market structures, perfect competition, monopoly and oligopoly and stress the importance of the shape of the demand function under different distributions of water inflow. The uncertainty element creates possibilities of exercising market power depending on the distribution of uncertainty among producers. The introduction of thermal power into the hydropower market has an impact on the residual demand function, which is important for the hydropower producers' possibilities of exercising market power.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 520.

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Date of creation: Oct 2007
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Handle: RePEc:ssb:dispap:520

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Keywords: hydropower; uncertainty; electricity; thermal power; demand functions; monopoly; duopoly;

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  1. Crampes, C. & Moreaux, M., 2001. "Water resource and power generation," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 975-997, May.
  2. von der Fehr, Nils-Henrik Morch & Harbord, David, 1993. "Spot Market Competition in the UK Electricity Industry," Economic Journal, Royal Economic Society, vol. 103(418), pages 531-46, May.
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  4. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
  5. Pindyck, Robert S, 1980. "Uncertainty and Exhaustible Resource Markets," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1203-25, December.
  6. Bushnell, James & Wolfram, Catherine, 2008. "Electricity Markets," Staff General Research Papers 31547, Iowa State University, Department of Economics.
  7. Glenn C. Loury, 1977. "The Optimal Exploitation of an Unknown Reserve," Discussion Papers 255, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. 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.
  9. Bjerkholt, Olav & Olsen, Oystein, 1984. "Uncertainty in hydroelectric power supply," Energy Economics, Elsevier, vol. 6(3), pages 159-166, July.
  10. Cairns, Robert D, 1990. " The Economics of Exploration for Non-renewable Resources," Journal of Economic Surveys, Wiley Blackwell, vol. 4(4), pages 361-95.
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Cited by:
  1. Mauritzen, Johannes & TangerĂ¥s, Thomas, 2014. "Real-time versus Day-ahead Market Power in a Hydro-based Electricity Market," Working Paper Series 1009, Research Institute of Industrial Economics.

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