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.
Long-term contracting in hydro-thermal electricity generation: Welfare and environmental impact
VINELLA, ANNALISA
2011-01-01
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
