April 23, 2019
CORE, room b-135
Efficiency of Markets with Hydroeletricity
Andy Philpott, University of Auckland
The New Zealand wholesale electricity market is dominated by generation from hydroelectric reservoirs, and does not have access to electricity imports when droughts result in energy supply shortages. Using a suite of perfectly competitive counterfactual models we study the efficiency of this market over the ten-year period 2008-2017. Our models combine stochastic dual dynamic programming with a high fidelity simulation model of the New Zealand hydrothermal electricity system. Results of the models are given for the calendar years 2008-2017, and compared with wholesale market outcomes in those years. Counterfactual outcomes depend on assumptions on fuel prices and attitudes towards shortage risk. Depending on assumptions, we identify differences in productive efficiency and Ricardian rents. Research papers related to the presentation can be downloaded from www.epoc.org.nz/publications.