Market Power

The deregulation of the electricity power production system in many countries since the early 1990s has stimulated interest in the possibilities of producers behaving strategically. The classical implication of use of market power that production is reduced compared with perfect competition also holds for electricity markets being supplied by conventional thermal power. Typical base-load plants like nuclear power plants do not have the same physical opportunities because of long and expensive start-up and close-down times. Systems with a significant contribution from hydro power with storage of water have not been studied so much. However, hydropower plays a significant part in many countries. As pointed out in Chapter 1 about 20% of the world’s electricity is produced by hydro power, and one third of countries in the world depend on hydropower for more than 50% of their electricity generation (www.hydropower.org). Hydropower with water storage has features that set it apart from other generating technologies concerning possibilities of exercising market power.