Supply Curves for Hydro Reservoirs - Estimation and Usage in Large-Scale Electricity Market Models
HEMF Working Paper No. 01/2019
28 Pages Posted: 11 Feb 2019
Date Written: January 31, 2019
Hydro electricity generation is of great importance for the current and the future electricity system since it provides electricity without emitting CO2 and moreover hydro reservoirs offer high operational flexibility. With increasing shares of fluctuating renewable energies, their value is even expected to increase, as – depending on the power plant type – they are able to store electricity. Therefore, an adequate representation of hydro power operation in large-scale electricity models is primordial. The aim of this paper is to analyze empirically the operation of large-scale hydro reservoirs based on observed market data. We derive supply curves for hydro reservoirs in Norway based on electricity price and hydro production time series and analyze key influencing factors. To push further, we apply the resulting supply curves in a multi-region electricity market model and show how they may be used to perform historical and counterfactual simulations.
Keywords: hydropower, water value, Econometric models, large-scale electricity market models
JEL Classification: C51, L94, Q25, Q41, Q42
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