Bidding Revealed: An Empirical Analysis of Selling Hydropower through Elspot

Abstract

In the deregulated Nordic electricity market, power producers bid to sell tomorrow's power in the day-ahead auction Elspot. This thesis presents an empirical analysis of bids submitted by three medium to large sized Norwegian reservoir hydropower producers over four two-week periods in 2011. Being price takers, the producers maximize their profits by bidding their marginal cost, which is dependent on both known and unknown variables. Additionally, producers must abide by both external market restrictions and internal technical and hydrological restrictions when bidding. Patterns in the submitted bids are found and explanations for the bidding behavior are given. Furthermore, suboptimalities and potential irrationalities in the bidding are revealed. A two-stage stochastic mixed-integer linear program generating optimal bids is developed to assist in the analysis. The hydropower producers do not optimize their bidding, yet often come close to the optimal result.