Strategic storage use in a hydro-thermal power system with carbon constraints

Several interconnected power systems worldwide have largely thermal and hydro production along with CO2 cap-and-trade (C&T) variable renewable energy sources (VRES). C&T policies increase VRES generation, socially optimal storage deployment could integrate output. However, reservoirs may be used strategically due to market power. We investigate these distortions assess measures for their mitigation via a bottom-up equilibrium model of New York Québec. In particular, we find evidence that producers shift water between seasons manipulate electricity prices even under net-hydro constraint. Alternative regulation covering net imports as well limits such temporal arbitrage but enables firms both generation pumped-hydro exercise spatial arbitrage. demonstrate will exacerbated more stringent because price-taking are less able respond price signals.