1
Overview
In the world, one of the characteristics of the nuclear technology compared to other technologies consists in the conjunction of very high fixed marginal cost and relatively low marginal cost. Consequently, the nuclear technology is used to cover the low demand by functioning in a constant way to the maximum of its capacity in order to cover its fixed costs. However, in a certain number of countries, the electric systems passed from a vertically integrated monopoly organisation in an operation regulated by competitive markets. Consequently one of the questions which arise is to determine how the nuclear power will be used and more precisely which will be the optimal management of the nuclear park in the competitive case. Within this new framework, we distinguish two approaches according to the temporal horizons considered: the short-term aspect and the medium-term aspect. The first aspect is related to the daily demand variations while the second aspect takes into account the level of the demand in winter and in summer (seasonal variation). In this paper we will analyze the second aspect which is the characteristic of the nuclear fuel reservoir which allows the placement of the nuclear energy during the different seasons of the year in a semi-load operation. The effect of the reservoir is based on the loading of the fuel of the nuclear. More precisely, the nuclear plants stop periodically (12/18 months) in order to be able to reload their fuel and decide at the beginning the length of the production campaign. Then, its strategic behaviour consists to place the nuclear production during this period and to maximize its value. The absence of production because of the inactivity of the power stations during the period of reloading implies the presence of an "opportunity cost" with the placement of the nuclear energy. It should be mentioned that the moment of reloading of the heart of the reactor depends only on the producer who takes into account the level of the demand and thus, the seasonal variation which characterises the medium term aspect. We will seek to establish a rational microeconomic model of the operation of the power stations in a flexibly management system like that of the French nuclear park. Because of its relative importance (approximately 80% of the French electric production comes from nuclear energy), the French nuclear park does not function entirely like in base but seeks to follow part of the temporal variations of the demand. This relative importance of the nuclear production is an exception in the world and so the literature on the subject is extremely reduced.
The paper is organized as follows : The article starts with the introductory section and then we give a brief review of the literature on the operation of the hydraulic reservoirs and their optimal management as well as the effects of hydraulic storage on competition in electricity. In spite of the existing operational differences between the nuclear units and the hydro-storage plants we consider that the nuclear fuel can be managed like the water and the management of the nuclear reservoir looks like that of the hydraulic reservoir. Part of this review is centralized on the methodologies suggested in the literature to measure market power in competitive hydro-thermal electric systems. In section 3, we present the features of the model that we will use in order to study the following cases : social welfare best solution, private monopoly, perfect competition and Cournot oligopoly competition. Section 4 determines and compares the decisions made by a social planner and by a private monopoly. In the same section, we determine the perfect competitive solution as well as the Cournot Nash solution by taking into account the effect of the reservoir. In the section 6, we compare the perfect competitive price found in the previous section with the imperfect competitive price as well as the observed market price in order to assess market power in the imperfectly competitive market and in the spot market respectively. Section 7 concludes.
Methods
Equilibrium/Simple dispatch model of the perfect competition or Cournot type.
Cournot Nash duopoly/oligopoly model.
Mathematical Programming in Scilab.
Results
We analyze the management of the nuclear fuel reservoir as well as the effects of storage in a perfectly/imperfectly competitive market. We take into account specific constraints of the nuclear power and the nuclear reservoir as well as physical constraints relating to the capacity of modulation of the nuclear energy. Furthermore we analyze the strategic aspect of the placement of the nuclear fuel in order to trace and assess market power. We also examine the capacity withholding strategy in the case of the nuclear.
In the case of the perfect competition, no market power can be exercised. The competitive producer equalize prices over time by distributing more production during the periods of high demand (winter) and less production during the periods of low demand (summer). On the contrary the oligopolist exploit the possibility of storage. More precisely he finds profitable to reduce his output in peak hours and to concentrate it in off-peak hours in order to increase the market price. We also examine the impact of the demand elasticity on prices and the behaviour of the producer and we find that the differences in elasticity over time are used strategically by the producer in order increase the level of the price.
We assess market power by locating the observed price in the interval[P_pc, P_cc] where the first price is the perfect competitive price and the second price is the imperfect competitive price. An observed price that is distant from the perfect competitive price indicates the exercise of market power.
Conclusions
The perfect competitive price obtained by our model (consideration of the technical constraints of the fuel reservoir) constitutes a value of the indicator of the market power. The price-cost margin increases during periods of high demand as well as during periods where the demand is less elastic. From a theoretical view of point, the nuclear producer prefers to allocate less supply in periods of high demand and more supply in periods of low demand.
References
[1] M. Soledad Arellano (2004), "Market Power in Mixed Hydro-Thermal Electric Systems". Working Paper University of Chile.
[2] Bushnell, J. (1998), "Water and Power : Hydroelectric Resources in the Era of Competition in the Western US". Power Working Paper PWP-056r.
[3] Yves Smeers (2007), "How well can one measure market power in restructured electricity systems". CORE Discussion Paper No. 2005/50.
[4] L. B. Lave, D. Perehodtsev (2001), "Capacity withholding equilibrium in wholesale electricity markets". Working Paper Carnegie Mellon University, 2001.
[5] S. Borenstein, J. Bushnell, C. R. Knittel (1999), "Market Power in electricity markets : Beyond concentration meausures".
[6] Kelman, Barroso, Pereira (2001), "Market power assessment and mitigation in hydrothermal systems". Proceedings of Power Industry Computer Applications, 2001. PICA 2001, 2001 Page(s) : 91-97.
[7] Laurent Pouret and William J. Nutall (2007), "Can nuclear power be flexible?" EPRG Draft Working Paper, Cambridge.
[8] David Spector (2007), “Electricité : Faut-il désespérer du marché?" Opuscule No 52006, Paris : Ed. ENS rue d'Ulm.