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

Etienne Billette de Villemeur and Annalisa Vinella

No 10-182, TSE Working Papers from Toulouse School of Economics (TSE)

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.

JEL-codes: L13 L93 Q50 (search for similar items in EconPapers)
Date: 2010-07
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Related works:
Journal Article: Long-term contracting in hydro-thermal electricity generation: Welfare and environmental impact (2011)
Working Paper: Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:22932

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