Summary and Conclusions
The key theme of the book has been what causes electricity prices to change over time in a hydropower-dominated electricity sector. Regarding water as a limited natural resource, the conclusion for the price structure over time, established in Chapter 2, was that the price should be the same for all periods, in accordance with asset pricing arbitrage a la Hotelling. (Introducing discounting, as would be appropriate for a longer horizon than for the hydropower management problem, would bring in the discount rate in the usual way as Hotelling’s rule is expressed, as the growth rate for the electricity price. However, this long-run change is not the type of price change we are talking about here for electricity.) The, maybe surprising, finding in Chapter 2 is that variation in demand over time should not influence the price. The price in, e.g., low-demand summer periods should be the same as the price in high-demand winter periods.
KeywordsPrice Change Electricity Price Shadow Price Competition Authority Shadow Prex
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