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Inflow Uncertainty in Hydropower Markets

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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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  • Petter Vegard Hansen, 2007. "Inflow Uncertainty in Hydropower Markets," Discussion Papers 520, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:520
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    Cited by:

    1. Tangerås, Thomas P. & Mauritzen, Johannes, 2014. "Real-time versus day-ahead market power in a hydro-based electricity market," Discussion Papers 2014/6, Norwegian School of Economics, Department of Business and Management Science.
    2. Jorge Balat & Juan E. Carranza & Juan D. Martin, 2015. "Dynamic and Strategic Behavior in Hydropower-Dominated Electricity Markets: Empirical Evidence for Colombia," BORRADORES DE ECONOMIA 012906, BANCO DE LA REPÚBLICA.
    3. Robles, Jack, 2016. "Infinite horizon hydroelectricity games," Working Paper Series 5075, Victoria University of Wellington, School of Economics and Finance.

    More about this item

    Keywords

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

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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