Dynamic Competition in Electricity Markets: Hydroelectric and Thermal Generation

Talat Genc and Henry Thille

No 1104, Working Papers from University of Guelph, Department of Economics and Finance

Abstract: We study competition between hydro and thermal electricity generators that face uncertainty over demand and water flows where the hydro generator is constrained by water flows and the thermal generator by capacity. We compute the Feedback equilibrium for the in?nite horizon game and show that there can be strategic withholding of water by the hydro generator. When water inflow is relatively low, however, the hydro generator may use more water than efficient as it faces an inefficiently low shadow price of water in this case. The inefficiency of the market outcome is tempered by the capacity constraints: for a large range of possible thermal production capacities and water flow levels, welfare loss under the duopoly market structure is much less than would occur in the absence of water and capacity constraints.

Keywords: Electricity markets; Electricity markets; Hydroelectricity; Imperfect Competition (search for similar items in EconPapers)
JEL-codes: C63 C73 L13 L94 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-com, nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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