Open Access Te Herenga Waka-Victoria University of Wellington
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Market Structure and Equilibrium in a Hydro Dominated Electricity Market

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posted on 2021-11-10, 19:02 authored by Lu, Andrea

Hydro generation plays an important role in electricity generation, especially in countries like New Zealand where 60 to 65 percent of electricity is generated in the hydro sector. In contrast to other types of electricity generation, for example gas generation, hydro generation has two unique properties: uncertainty regarding future resource availability and the ability to store the nature resource. Although hydro resource is often considered to be ‘free’, the ability to store creates an endogenous hidden marginal cost of water: usage today entails the loss of the ability to be used in future periods. Therefore pricing in a hydro dominated electricity market should be different from the approaches applied in markets that consist of generation methods that use only non-storable resources. This paper introduces a tractable approach to model a hydro dominated electricity market that incorporates inter-temporal decision making. It enables us to compute the equilibrium outcomes and the endogenous hidden marginal cost of water under different market structures.


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Date of Award



Te Herenga Waka—Victoria University of Wellington

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Author Retains Copyright

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Degree Grantor

Te Herenga Waka—Victoria University of Wellington

Degree Level


Degree Name

Master of Arts

Victoria University of Wellington Item Type

Awarded Research Masters Thesis



Victoria University of Wellington School

School of Economics and Finance


Guthrie, Graeme; Evans, Lewis