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An Oligopolistic Electricity Market Model with Interdependent Segments

Pierre-Olivier Pineau and Georges Zaccour

Year: 2007
Volume: Volume 28
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No3-9
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In this paper,we model a two-period electricity market with interdependent demand, where oligopolistic generators make investments in peak-and base-load capacities. Different prices are obtained in the two periods, and residential consumers can react to prices across demand periods. We characterize the Cournot equilibrium obtained as a function of price and cross-price effects and present a numerical illustration based on the Ontario (Canada) electricity market.

A Dynamic Oligopolistic Electricity Market with Interdependent Market Segments

Pierre-Olivier Pineau, Hasina Rasata, and Georges Zaccour

Year: 2011
Volume: Volume 32
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No4-9
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We propose a deterministic, discrete-time, finite-horizon oligopoly model to investigate investment and production equilibrium strategies, in a setting where demand evolves over time and the two market-segment loads (peak-and base-load) are interdependent. The players (generators) compete a` la Cournot, open-loop Nash equilibria are computed and numerical results are discussed. The model is calibrated with data from Ontario, Canada. We assess the impact on equilibrium strategies of a generation sector with more market power than what is actually the case. We also find a slight difference in the investment sequence when interdependent demand segments are considered. Finally, we analyze the impact of increasing demand elasticities over time, and varying the financial values of the production capacities that remain at the end of the planning horizon. We believe that such a tool is valuable for professionals and scholars interested in the dynamics of production capacity mix (portfolio of technologies) in the electricity sector. It is also of paramount importance for public decision makers who have to simultaneously deal with environmental issues and with price control, both of which are politically sensitive.

Integrating Thermal and Hydro Electricity Markets: Economic and Environmental Costs of not Harmonizing Pricing Rules

Etienne Billette de Villemeur and Pierre-Olivier Pineau

Year: 2016
Volume: Volume 37
Number: Number 1
DOI: 10.5547/01956574.37.1.edev
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The electricity sector is the largest source of greenhouse gases (GHG) emissions in the world, and reducing these emissions can often be costly. However, because electricity markets remain integrated at a shallow level (with different pricing regulations), many gains from deeper integration (adoption of marginal cost pricing everywhere) are yet to be realized. This paper assesses the benefits of deep integration between a "hydro" jurisdiction and a "thermal" one. It also underscores the inefficiency of trade when pricing rules differ. Our detailed hourly model, calibrated with real data from the provinces of Ontario and Quebec, Canada, estimates price, consumption, emissions and welfare changes associated with fully integrating electricity markets, under transmission constraints. A negative abatement cost of $37/tonne of CO2 was found (for more than 1 million tonnes), clearly illustrating the untapped potential of wealth creation in carbon reduction initiatives. Furthermore, given the inefficiency of shallow integration between markets, we found that removing interconnections between markets offers a relatively affordable CO2-reduction opportunity, at $21.5/tonne.

Evaluating an Interconnection Project: Do Strategic Interactions Matter?

Sébastien Debia, David Benatia, and Pierre-Olivier Pineau

Year: 2018
Volume: Volume 39
Number: Number 6
DOI: 10.5547/01956574.39.6.sdeb
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High-Voltage Direct Current (HVDC) merchant transmission lines allow trade across separate power markets and often in different countries. Flows on existing cross-border lines are often assessed as suboptimal, which may be due to the light regulation that often prevails in these cases. This paper studies the impact of market power on HVDC interconnections as a determinant of imperfect arbitrage. We assess the impact of Physical Transmission Rights (PTRs) allocation on the management of an HVDC interconnection between a thermal and a hydroelectricity market, assuming dynamic water management. We use a two-stage game formulated as an Equilibrium Problem with Equilibrium Constraints (EPEC) to model the strategic trade between the New York (US) and Quebec (Canada) systems. The numerical model is calibrated with public data. We find that although the interconnection can create wealth, a high concentration of PTRs can destroy value because of dumping strategies. The impact of trade on local price levels may be of concern and calls for the functional unbundling of traders and generators.

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