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

Weather conditions in Colombia vary greatly throughout the territory. This fact, in the context of Colombian wholesale electricity, plays a key role in the bid pricing strategies and intensity of the strategic behaviour 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.