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Title:Properties of a non-competitive electricity market dominated by hydroelectric power PDF Logo
Authors:Førsund, Finn R.
Hoel, Michael
Issue Date:2004
Series/Report no.:Memorandum, Department of Economics, University of Oslo 2004,07
Abstract:An important conclusion from the literature on hydropower is that if there are no other constraints than the available water reservoirs for a year, and operating costs are ignored, the competitive (and socially optimal) outcome is characterized by the (present value) price being constant through the year. A second important conclusion is that the outcome under monopoly generally will differ from this, provided that the demand functions differ across different days (or other sub-periods) of the year.We show that even if the demand function is the same all days of the year, the monopoly outcome will generally differ from the competitive outcome. The difference is caused by the profit function of a price-setting producer of hydropower being non-concave. This non-concavity can be caused by short-run capacity limits either on exports and imports of electricity, or on the supply of alternative electricity sources.
Subjects:Electricity prices
Hydropower
JEL:L12
L13
L94
Q25
Document Type:Working Paper
Appears in Collections:Memorandum, Department of Economics, University of Oslo

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