Guest Speaker: Afzal Siddiqui, Professor, Department of Computer and Systems Sciences, Stockholm University
When: Friday October 7th 2022, 11h30-12h30 ET
Where: HEC Montréal, 3000 Côte-Sainte-Catherine Rd, Montréal | Room CPA du Québec, 1st Floor, Green Section
No registration required
Summary: Ambitious climate packages promote the integration of variable renewable energy (VRE) and electrification of the economy. For the power sector, such a transformation means the emergence of so-called prosumers, i.e., agents that both consume and produce electricity. With its vast hydro reservoirs and ample transmission capacity, the Nordic region is seemingly well positioned to cope with intermittent VRE output. However, the increased requirement for flexibility may be leveraged by incumbent producers to manipulate prices. Via a Nash-Cournot model with a representation of the Nordic region’s spatio-temporal features and reservoir volumes, we examine how hydro producers’ ability to manipulate electricity prices through
temporal arbitrage is affected by (i) VRE-enabled prosumers and (ii) a high carbon price. We find that hydro reservoirs could exploit prosumers’ patterns of net sales to conduct temporal arbitrage more effectively. Meanwhile, a higher carbon price would further enhance hydro reservoirs’ market power because flexible price-taking thermal plants would be unable to counter such producers’ strategy to target VRE’s intermittency.
Authors: Farzad Hassanzadeh Moghimi (Stockholm University), Yihsu Chen (University of California at Santa Cruz), and Afzal S. Siddiqui (Stockholm University and Aalto University).