Insights from Actual Day-Ahead Bidding of Hydropower

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Erik N Alnæs
Roger B Grøndahl
Stein-Erik Fleten
Trine K Boomsma

Abstract

We analyse bidding behavior in the Nordic electricity market, where producers submit supply schedules for tomorrow's generation in a day-ahead auction.  We use the two-stage stochastic mixed-integer linear program of Fleten and Kristoffersen (2007) to generate efficient bids to assist in the analysis. These bids are compared to those submitted by three Nordic reservoir hydropower producers over four two-week periods in 2011. Being price takers, the producers maximize their profits by bidding their marginal cost. We find that the hydropower producers often come close to the model-optimal result. However, not all marginal costs are taken into account, possibly leading to overproduction at low prices. Marginal costs seem in some cases to be overestimated at high production levels, leading to underproduction in some situations.

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