Electricity production in a hydro system with a reservoir constraint

The purpose of this article is to analyze how market power may affect the allocation of production between seasons (summer and winter) in a hydro power system with reservoir constraints and inflow uncertainty. We find that even without market power the price in the summer season may be lower than the expected price in the winter season. Market power may in some situations lead to higher sales and lower price in summer than the competitive outcome and in other situations to the opposite result. Furthermore, market power may lead to a smaller price difference between summer and winter than in a competitive marke

Policy measures and storage in a hydropower system

In this paper we discuss how three different public policy measures affect water storage controlled by hydropower producing firms. In particular we discuss measures to promote competition, increase transmission capacity and rationing. The analysis is conducted within the framework of an oligopoly model where 2 hydro producing firms engage in dynamic Bertrand competition. We extend this model to be able to analyse how the three policy measures affect storage by hydropower producing firms and focus especially on the probability of hydropower replacing thermal production. We find that competition, represented by the Bertrand-Nash solution leads to lower storage compared to the monopoly solution. Furthermore, we find that increased transmission capacity and rationing both lead to more fierce competition in situations when water is plentiful and thus to a reduction in storage. These results imply that increased competition, transmission capacity and rationing all contribute to an increased probability of hydropower replacing thermal production

Temporary bottlenecks, hydropower and acquisitions

The purpose of this article is to study the effects of an acquisition in a hydro power system with temporary bottlenecks. We apply a model with four markets: two regions and two time periods. It is shown that an acquisition has an ambiguous effect on welfare. In some instances it would lead to larger differences in prices between different markets, which would lead to an increase in the dead weight loss. In other instances an acquisition would lead to a reduction in price differences between different markets. This may happen if the dominant firm acquires a firm that is active in the market where the dominant firm used to dump its production before the acquisition took place

Supply function equilibria in a hydropower market

The purpose of this working paper is to study the implications of market power in a hydropower based electricity market within the framework of the Supply Function Equilibria (SFE) model. We start by developing the standard SFE model with two symmetric players. We then develop a simple numerical example to illustrate the effects of production constraints both related to installed effect capacity and to energy capacity. We illustrate that binding constraints on energy production reduce the number of allowable supply functions

Water with power : market power and supply shortage in dry years

The purpose of this paper is to analyse how market power may affect the allocation of production between seasons (summer and winter) in a hydro power system with reservoirs and where inflow in winter is uncertain. We find that even without market power we expect lower average prices during summer than during winter. Furthermore, we find that market power may in some situations lead to more sales during summer and in other situations to less sales during summer. Thus market power is found to have an ambiguous effect on the supply shortage in years with low inflow

Temporary bottlenecks, hydropower and acquisitions in networks

The purpose of this article is to study the effects of an acquisition in an energy system dominated by hydropower and with temporary bottlenecks. We apply a model with four markets: two regions and two time periods. It is shown that an acquisition has an ambiguous effect on welfare. In some instances it would lead to larger differences in prices between different markets, which would lead to an increase in the dead weight loss. In other instances an acquisition would lead to a reduction in price differences between different markets. This may happen if the dominant firm acquires a firm that is active in the market where the dominant firm used to dump its energy capacity before the acquisition took place

Temporære flaskehalser og oppkjøp i norsk kraftforsyning : et svar til von der Fehrs kommentarer

I Skaar og Sørgard (2002) konkluderte vi med at den samfunnsøkonomiske lønnsomheten av et oppkjøp i et vannbasert kraftsystem er tvetydig i en situasjon med temporære flaskehalser og gitt total produksjon. von der Fehr (2002) endrer på vår forutsetning om produsentenes fleksibilitet hva angår flytting av vann, og finner da at et oppkjøp alltid gir et samfunnsøkonomisk tap. Tilfellet med delvis integrerte markeder, nettopp det tilfellet som følger av en situasjon med temporære flaskehalser, er imidlertid ikke analysert i von der Fehr (2002). Vi foretar her en analyse av det sistnevnte tilfellet med de samme forutsetninger som i von der Fehr (2002). Vi finner da at et oppkjøp har en tvetydig effekt på prisforskjellene og dermed en tvetydig effekt hva angår samfunnsøkonomisk lønnsomhet

Temporære flaskehalser og oppkjøp i norsk kraftforsyning

I dette notatet drøfter vi hvordan et oppkjøp vil påvirke prissettingen i et vannkraftsystem der produsentene må fordele sin produksjon over to perioder og det forekommer temporære flaskehalser. Vi viser at i en slik situasjon vil oppkjøp lede til et samfunns-økonomisk tap dersom prisforskjellene øker, og omvendt dersom prisforskjellene reduseres. Vi finner at dersom oppkjøpskandidaten befinner seg i et lavprisområde, kan et oppkjøp innebære at prisforskjellene reduseres, mens prisforskjellene vil øke som følge av oppkjøp dersom oppkjøpskandidaten befinner seg i et høyprisområde. Dermed vil den samfunnsøkonomiske lønnsomheten av at et oppkjøp være tvetydig i en slik situasjon med temporære flaskehalser og en gitt total produksjon. Vi analyserer også tilfellet med et blandet system, med både vannkraftprodusenter og termiske produsenter, og viser at også i det tilfellet er effektene tvetydige når vannkraftprodusenter slår seg sammen