Aggregator-Enabled Prosumers' Impact on Strategic Hydro-Thermal Operations

Abstract

Climate packages envisage decarbonization of the power system and electrification of the wider economy via variable renewable energy (VRE). These trends facilitate the rise of aggregator-enabled prosumers and engender demand for flexibility. By exploiting conducive geography, e.g., in the Nordic region, hydro reservoirs can mitigate VRE's intermittency. Nevertheless, hydro producers may leverage this increased need for flexibility to exert market power through temporal arbitrage. Using a Nash-Cournot model, we examine how aggregator-enabled prosumers with endogenous loads and VRE capacity interact with other agents to affect market outcomes. Based on Nordic data, we find that hydro producers enhance their market power by shifting their production away from periods in which prosumers are net buyers and "dumping" their output during periods in which prosumers are net sellers. Hence, jurisdictions that rely upon (hydro) storage to integrate VRE from prosumers will need to be wary of incumbent firms' incentives to manipulate prices.