Authors:

  • Jorge Tamayo

Excerpt

October 28, 2023, Paper: "We study the Colombian energy market, where diversified energy producers strategically substitute thermal generation for hydropower before droughts. This within-firm substitution, due to thermal generators internalizing the drop in hydropower supply during droughts, mitigates higher market prices. We show theoretically and empirically that these virtuous spillovers exist only when thermal generators have market power and are severed when their residual demands are vertical or horizontal, as in the latter cases, there is no scope for business stealing. Therefore, industry consolidation through firms with diversified production portfolios can decrease prices, reducing the cost of intermittencies and keeping the green transition affordable."