Energy trading efficiency in the US Midcontinent electricity markets

Incremental wind energy development in the Midcontinent Independent System Operator electricity markets of the United States

“…Our paper makes three contributions that complement recent empirical studies of missing money due to WG's merit order effect (e.g., Quint and Dahlke, 2019;Zarnikau et al, 2019Zarnikau et al, , 2020bProl et al, 2020;Cao et al, 2021;Peña et al, 2022): 6  It adopts the perspective of a cost-minimizing load serving entity (LSE) , leading to a newly developed explanation of the missing money problem based on the profitability of a wind power purchase agreement (WPPA) and a tolling agreement (TA). This explanation matches (a) the business reality 134 non-transmission owners, and generation capacity mix of natural gas (43%), coal (27%), renewables (21%), nuclear (7%) and other (2%).…”

“…This paper empirically answers the substantive research question of how much incremental WED may occur as a market-based outcome without missing money for WG's and NG's investments. This question is real-world relevant, underscored by WG's and NG's documented missing money problem (Woo et al, 2012(Woo et al, , 2016Prol et al, 2020;Cao et al, 2021;Peña et al, 2022) that dims the prospect of relying on market-based incentives to maintain system reliability (Joskow and Tirole, 2007;Joskow, 2013). It is also policy important because incremental WED weakens the investment incentives for WG and NG that have lower CO2 emissions than coal-fired generation plants owned by MISO's members (Zarnikau et al, 2020b).…”

“…As shown by Figure 1, these two regions are geographically distinct, thus enabling an empirical analysis of regional generation investment incentives. Finally, MISO has salient features that make our paper an important and interesting case study, including its large footprint, huge peak demand, diverse market participants, and mix of heterogeneous generation capacities (Zarnikau et al, 2020b;Cao et al, 2021 Based on the hourly data for the 82-month period of 01/01/2014 to 10/31/2020 used by Cao et al (2021) to determine MISO's energy trading efficiency, our key findings are:…”

“…A partial list of these issues includes wholesale market's trading inefficiency, transmission congestion, market power abuse, inadequate use of reliability differentiation and dynamic pricing at the retail level, retail pricing's limited pass-through of wholesale price changes, market power abuse by rogue independent power generators, and poor coordination of generation and transmission investments in a competitive market environment (Cao et al, 2021). While meaningfully addressing some of these issues is possible through a market design with reliability differentiation and generation dispatch based on marginal fuel costs , it is well beyond this paper's intent and scope.…”

Market-based Estimation of Average Electricity Outage Costs in the United States

“…We used max(G, X 1 ) to measure A, where G = annual total generation × (1 -average line loss of 5%). Overlooked by the above cited EOC studies, this measurement of A reflects interstate electricity trading under wholesale market competition in the US (Cao et al, 2021). If a state is an exporter, G > X 1 , and G measures a state's total amount of electricity available.…”