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

Abstract

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.