Modeling strategic competition in hydro-thermal electricity generation markets with cascaded reservoir -hydroelectric generation plants
Abstract
This dissertation aims to achieve two goals. The first is to model the strategic interactions of firms that own cascaded reservoir-hydro plants in oligopolistic and mixed oligopolistic hydrothermal electricity generation markets. Although competition in thermal generation has been extensively modeled since the beginning of deregulation, the literature on competition in hydro generation is still limited; in particular, equilibrium models of oligopoly that study the competitive behavior of firms that own reservoir-hydro plants along the same river in hydrothermal electricity generation markets are still under development. In competitive markets, when the reservoirs are located along the same river, the water released from an upstream reservoir for electricity generation becomes input to the immediate downstream reservoir, which may be owned by a competitor, for current or future use. To capture the strategic interactions among firms with cascaded reservoir-hydro plants, the Upstream-Conjecture approach is proposed. Under the Upstream-Conjecture approach, a firm with an upstream reservoir-hydro plant assumes that firms with downstream reservoir-hydro plants will respond to changes in the upstream firm's water release by adjusting their water release by the same amount. The results of the Upstream Conjecture experiments indicate that firms that own upstream reservoirs in a cascade may have incentive to withhold or limit hydro generation, forcing a reduction in the utilization of the downstream hydro generation plants that are owned by competitors. Introducing competition to hydroelectricity generation markets is challenging and ownership allocation of the previously state-owned cascaded reservoir-hydro plants through privatization can have significant impact on the competitiveness of the generation market. The second goal of the dissertation is to extract empirical guidance about best policy choices for the ownership of the state-owned generation plants, including the cascaded reservoir-hydro plants. Specifically, an equilibrium model of oligopoly, where only private firms compete for electricity supply is proposed. Since some electricity generation markets are better characterized as mixed oligopolies, where the public firm coexists with the private firms for electricity supply, and not as oligopolies, another equilibrium model of mixed oligopoly is proposed. The proposed mixed oligopoly equilibrium model is the first implementation of such market structure in electricity markets. The mathematical models developed in this research are applied to the simplified representation of the Turkish electricity generation market to investigate the impact of various ownership allocation scenarios that may result from the privatization of the state owned generation plants, including the cascaded reservoir-hydro plants, on the competitive market outcomes.
Degree
Ph.D.
Advisors
Rardin, Purdue University.
Subject Area
Industrial engineering|Energy|Electrical engineering
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