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Long-term contracting in hydro-thermal electricity generation: Welfare and environmental impact

Etienne Billette de Villemeur () and Annalisa Vinella ()

Utilities Policy, 2011, vol. 19, issue 1, 20-32

Abstract: We 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.

Keywords: Hydropower; Thermal; power; Water; allocation; Environmental; externalities; Long-term; contracts (search for similar items in EconPapers)
Date: 2011
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Working Paper: Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact (2010) Downloads
Working Paper: Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact (2010) Downloads
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