Market power and competition in a hydrothermal system

A stochastic dynamic programming hydrothermal dispatch model to simulate a bid-based market is proposed, developed and evaluated. Market participants use a game theory approach to define bidding strategies. First, individual plants are considered as bidders and second, holdings integrating several plants. Emphasis is given to hydro reservoir modeling and to the assessment of their market power. The model is applied to simulate a bidding scheme in the Chilean central interconnected system. Important market power is detected, localized on main reservoir plants and implicating important increases in resultant market prices. Recommendations are formulated on regulatory measures to mitigate market power.