Hydropower Economics

1. Front Matter

   Pages i-xii

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2. Introduction

   Pages 1-18

3. Water as a Natural Resource

   Pages 19-31

4. Hydropower with Constraints

   Pages 33-66

5. Multiple Producers

   Pages 67-93

6. Mix of Thermal and Hydropower Plants

   Pages 95-120

7. Trade

   Pages 121-149

8. Transmission

   Pages 151-179

9. Market Power

   Pages 181-211

10. Uncertainty

    Pages 213-238

11. Summary and Conclusions

    Pages 239-249

12. Back Matter

    Pages 251-261

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The state organisation responsible for coordinating the hydropower el- tricity system in Norway (“Samkjøringen”) contacted me in 1990 about the advanced plan for deregulating the electricity system, separating gene- tion, transmission, and distribution and introducing a wholesale market for electricity. It was felt that insights about the fundamental nature of running an electricity system based on hydropower was somewhat lacking within the team of academic economists engaged to write background reports by the Oil and Energy ministry responsible for driving the reform of the el- tricity system. When talking to engineers I was fascinated by the world of electricity, with its physical laws and weird concepts such as reactive power and el- tric phase angles. Externalities of hydraulic interdependence between river-based power stations and highly fluctuating loss and congestion - ternalities involved in a meshed transmission network had to be rec- nised. Furthermore, capturing all these elements required advanced mathematical methods of dynamic programming in a stochastic envir- ment. My conclusion was that a market design that neglected these aspects did it at its own peril. I predicted volatile prices coming out of a compe- tion between producers facing zero short-run variable costs and problems with investments coming forth sufficiently from a social perspective. However, I can safely say that my report had no impact whatsoever on the Norwegian electricity reform of 1991, that must be regarded, not the least by me, as being highly successful.

• Hydropower
• alternate energy sources
• electricity
• linear optimization
• modeling
• monopoly
• nonlinear optimization
• optimization
• reservoir
• water value
• wind
• water policy

From the reviews:

"This book claims that if one is to correctly comprehend deregulation in electricity markets, then one must first develop an appreciation for the optimal use of hydro and thermal power. … this book would have profited from a thorough review of the extant literature. … it is important to note that the author deals well with his selected topics. … I recommend this book to all readers who wish to learn more about the economics of hydroelectric power." (Amitrajeet A. Batabyal, Interfaces, Vol. 39 (1), January-February, 2009)

• University of Oslo, Norway

  Finn R. Førsund

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