Aggregator-Enabled Prosumers' Impact on Strategic Hydro-Thermal Operations

Climate packages envisage decarbonization of the power system and electrification of the wider economy via variable renewable energy (VRE). These trends facilitate the rise of aggregator-enabled prosumers and engender demand for flexibility. By exploiting conducive geography, e.g., in the Nordic region, hydro reservoirs can mitigate VRE's intermittency. Nevertheless, hydro producers may leverage this increased need for flexibility to exert market power through temporal arbitrage. Using a Nash-Cournot model, we examine how aggregator-enabled prosumers with endogenous loads and VRE capacity interact with other agents to affect market outcomes. Based on Nordic data, we find that hydro producers enhance their market power by shifting their production away from periods in which prosumers are net buyers and "dumping" their output during periods in which prosumers are net sellers. Hence, jurisdictions that rely upon (hydro) storage to integrate VRE from prosumers will need to be wary of incumbent firms' incentives to manipulate prices

Flexible supply meets flexible demand: prosumer impact on strategic hydro operations

Ambitious climate packages promote the integration of variable renewable energy (VRE) and electrification of the economy. For the power sector, such a transformation means the emergence of so-called prosumers, i.e., agents that both consume and produce electricity. Due to their inflexible VRE output and flexible demand, prosumers will potentially add endogenous net sales with seasonal patterns to the power system. With its vast hydro reservoirs and ample transmission capacity, the Nordic region is seemingly well positioned to cope with such intermittent VRE output. However, the increased requirement for flexibility may be leveraged by incumbent producers to manipulate prices. Via a Nash-Cournot model with a representation of the Nordic region’s spatio-temporal features and reservoir volumes, we examine how hydro producers’ ability to manipulate electricity prices through temporal arbitrage is affected by (i) VRE-enabled prosumers and (ii) the latter plus a high CO2 price. We find that hydro reservoirs could exploit prosumers’ patterns of net sales to conduct temporal arbitrage more effectively, viz., by targeting periods in which prosumers are net buyers (net sellers) to withhold (to “dump”) water. Meanwhile, a higher CO2 price would further enhance hydro reservoirs’ market power because flexible price-taking thermal plants would be unable to ramp up production in order to counter such producers’ strategy to target VRE’s intermittency. Hence, in spite of a flexible demand side to complement additional intermittent VRE output, strategic hydro producers may still exacerbate price manipulation in a future power sector via more tailored exercise of market power.Peer reviewe

Aggregator-Enabled Prosumers' Impact on Strategic Hydro-Thermal Operations

Climate packages envisage decarbonization of the power system and electrification of the wider economy via variable renewable energy (VRE). These trends facilitate the rise of aggregator-enabled prosumers and engender demand for flexibility. By exploiting conducive geography, e.g., in the Nordic region, hydro reservoirs can mitigate VRE's intermittency. Nevertheless, hydro producers may leverage this increased need for flexibility to exert market power through temporal arbitrage. Using a Nash-Cournot model, we examine how aggregator-enabled prosumers with endogenous loads and VRE capacity interact with other agents to affect market outcomes. Based on Nordic data, we find that hydro producers enhance their market power by shifting their production away from periods in which prosumers are net buyers and "dumping" their output during periods in which prosumers are net sellers. Hence, jurisdictions that rely upon (hydro) storage to integrate VRE from prosumers will need to be wary of incumbent firms' incentives to manipulate prices.Peer reviewe