Firm-location, regional weather conditions and bid pricing strategies in Colombian wholesale electricity market

Abstract

[Abstract]: Weather conditions in Colombia vary greatly throughout the territory. This fact, in the context of the Colombian wholesale electricity plays a key role in the bid pricing strategies and in the intensity of the strategic behavior among plants. We estimate a dynamic spatial Durbin model to factor in the effects weather conditions have on bid pricing. The results show how energy inputs become critical for setting bid prices, a fact that is reinforced by the predominance of hydraulic generation technologies. One potential policy recommendation is the need to implement balancing markets to signal efficiently the pricing strategies in these markets.