This paper provides a systematic analysis of three different market solutions for handling externalities of cascaded hydroelectric plants: shared ownwership models, wholesale water markets, and virtual reseirvoirs. Using computer simulations, and a Brazilian cascade as a case study, it is possible to estimate the cost of anarchy (the difference between the market equilibrium and the socially optimal result) of the three solutions, under different competition conditions.These analyses allow for making qualitative recommendations for regulators and companies operating hydropower plants.
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