The Chilean Hydrothermal Market: A Game Theory-Based Approach

Abstract

This work analyses the effects and potential consequences of deregulating the Chilean electricity generating market. It proposes a model generation system to which non-cooperative game theory is applied within a static and dynamic context. Similar studies for purely thermal systems have been carried out in Chile where operational decisions only depend on the costs of fuel and other operating costs, meaning that static models can be used. Hydraulic power stations add a new important dimension which should be incorporated into the model: using water and strong temporal dependence on decision-making, implying using dynamic models. This work is a first attempt to draw up a dynamic model of the Chilean hydrothermal system. The model is generic and can be used for simulating an energy stock-exchange-based hydrothermal system. A loss of generality can be avoided by supposing that thermal and hydraulic power stations can supply such stock-market and behave strategically.

Keywords: hydrothermal market, strategic behaviour, energy stock exchange, Chile

JEL Classification: D43, L11, L13, L94