The degree of rationality in actual bidding of hydropower at Nord Pool

In deregulated electricity markets, power producers bid to sell tomorrow's generation in day-ahead auctions. We analyse bids submitted by three medium to large sized Norwegian reservoir hydropower producers over four two-week periods in 2011. Being price takers, the producers maximize their profits by bidding their marginal cost. Additionally, production must respect both external market rules and internal technical and hydrological restrictions when bidding. Patterns in the submitted bids are found and explanations for the bidding behavior are given. Furthermore, potential irrationalities in the bidding are revealed.