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Dynamic Competition in Electricity Markets: Hydroelectric and Thermal Generation

Author

Listed:
  • Talat S. Genc

    (Department of Economics,University of Guelph)

  • Henry Thille

    (Department of Economics, University of Guelph)

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.

Suggested Citation

  • Talat S. Genc & Henry Thille, 2011. "Dynamic Competition in Electricity Markets: Hydroelectric and Thermal Generation," Working Papers 1104, University of Guelph, Department of Economics and Finance.
  • Handle: RePEc:gue:guelph:2011-04.
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    File URL: http://www.uoguelph.ca/economics/sites/uoguelph.ca.economics/files/2011-04.pdf
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    References listed on IDEAS

    as
    1. Thille, Henry, 2006. "Inventories, market structure, and price volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1081-1104, July.
    2. Garcia, Alfredo & Reitzes, James D & Stacchetti, Ennio, 2001. "Strategic Pricing when Electricity is Storable," Journal of Regulatory Economics, Springer, vol. 20(3), pages 223-247, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Moita, Rodrigo Menon Simões & Monte, Daniel, 2017. "Competition in cascades," Textos para discussão 456, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    2. Houeida Hedfi & Ahlem Dakhlaoui, 2020. "Electricity Industrial Organization: What About The Strategic Behavior Of Hydro And Thermal Operators?," International Journal of Energy Economics and Policy, Econjournals, vol. 10(2), pages 438-442.
    3. Abbassi, Abdessalem & Dakhlaoui, Ahlem & Tamini, Lota D., 2014. "Risk Aversion and Dynamic Games Between Hydroelectric Operators under Uncertainty," Working Papers 172089, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).
    4. Robles, Jack, 2016. "Infinite horizon hydroelectricity games," Working Paper Series 5075, Victoria University of Wellington, School of Economics and Finance.
    5. Houeida Hedfi & Ahlem Dakhlaoui & Abdessalem Abbassi, 2020. "Dynamic Behaviour of Hydro/Thermal Electrical Operators Under an Environmental Policy Targeting to Preserve Ecosystems Integrity and Air Quality," Working Papers halshs-02523330, HAL.

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    More about this item

    Keywords

    Electricity markets; Electricity markets; Hydroelectricity; Imperfect Competition;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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