Hydropower Production Strategies: Impacts on Emissions and Windfall Profits

34 Pages Posted: 11 May 2011 Last revised: 28 Feb 2013

See all articles by Maria Kopsakangas-Savolainen

Maria Kopsakangas-Savolainen

Finnish Environment Institute; University of Oulu - Department of Economics, Accounting and Finance

Rauli Svento

University of Oulu - Department of Economics, Accounting and Finance

Date Written: January 2013

Abstract

Earlier literature clearly shows potential for, and realized abuses of, market power in deregulated electricity markets. Markets with a significant role of hydropower stations are susceptible to the abuse of market power. In this paper we utilize a long-run oriented Real-Time Price based simulation model to analyze the strategic behavior of hydropower producers in the Nordic electricity market framework. We show through different scenarios how different hydropower production strategies affect total annual energy consumed, prices, and capacity structure. We also show the relation between different strategies and emissions, costs and windfall profits. There seems to be no superior scenario under which all socially desirable goals are achieved as there is a clear tradeoff between allowing high windfall profits with highest cost efficiency and achieving the target for lower emissions.

Keywords: Strategic hydropower, Real-Time Pricing, CO2 emissions, Windfall profits

JEL Classification: C63, D22, D24, L11, L94, Q41

Suggested Citation

Kopsakangas-Savolainen, Maria and Svento, Rauli, Hydropower Production Strategies: Impacts on Emissions and Windfall Profits (January 2013). Available at SSRN: https://ssrn.com/abstract=1838025 or http://dx.doi.org/10.2139/ssrn.1838025

Maria Kopsakangas-Savolainen (Contact Author)

Finnish Environment Institute ( email )

PO Box 413
Oulu, 90014
Finland

University of Oulu - Department of Economics, Accounting and Finance ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

Rauli Svento

University of Oulu - Department of Economics, Accounting and Finance ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

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