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Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact

De Villemeur, Étienne and Vinella, Annalisa (2010) Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact. TSE Working Paper, n. 10-182, Toulouse

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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.

Item Type: Monograph (Working Paper)
Language: English
Date: 13 July 2010
Place of Publication: Toulouse
JEL Classification: L13 - Oligopoly and Other Imperfect Markets
L93 - Air Transportation
Q50 - General
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 18 Jan 2012 06:02
Last Modified: 19 Mar 2018 15:39
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