%0 Report
%9 Working Paper
%A De Villemeur, Étienne
%A Vinella, Annalisa
%B TSE Working Paper
%C Toulouse
%D 2010
%F publications:3401
%I Université Toulouse 1 Capitole
%T Long-term contracting in hydro-thermal electricity generation: welfare and environmental impact
%U https://publications.ut-capitole.fr/id/eprint/3401/
%V 10-182
%X 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.