Welfare implications of capacity payments in a price-capped electricity sector: A case study of the Texas market (ERCOT)

Bajo‐Buenestado, Raúl

doi:10.1016/j.eneco.2017.03.026

Cited by 39 publications

(10 citation statements)

References 42 publications

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“…expected returns. Peaking plant are thought to be particularly susceptible given manifestly random revenues in organised energy-only spot markets (Peluchon, 2003;Simshauser, 2008;Bajo-Buenestado, 2017;Keppler, 2017;Milstein and Tishler, 2019).…”

Section: 1mentioning

confidence: 99%

Merchant renewables and the valuation of peaking plant in energy-only markets

Simshauser

2020

Energy Economics

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Merchant renewables are a new asset class. With historically high cost structures and low wholesale prices associated with merit order effects, continuity of entry has been reliant on Renewable Portfolio Standards or other policy initiatives such as government-initiated Contracts-for-Differences. But in Australia's National Electricity Market, sharply falling costs of renewables and volatile wholesale market conditions from coal plant exits has led to a surprising number of merchant intermittent renewable investments. Adding to the merchant renewable fleet are older wind plants whose inaugural long-dated PPAs recently matured. Rolling over PPAs is possible, but not necessarily optimal. In this article, a merchant gas turbine, merchant wind, and an integrated portfolio comprising both plants are valued in the NEM's South Australian region. Asset valuations reveal surprising results. The modelling sequence shows stand-alone gas turbine valuation metrics suffer from modest levels of missing money, that merchant wind can commit to some level of forward (fixed volume) swap contracts in-spite of intermittent production, but the combined portfolio tightens overall valuation metrics significantly. Above all, the combined portfolio is financially tractable, overcoming the missing money for a gas turbine plant undertaking peaking duties. In a NEM region where intermittent renewable market share exceeds 50%, this suggests the energy-only, real-time gross pool design may yet be deemed suitable vis-à-vis meeting environmental objectives and Resource Adequacy. Cambridge Working Papers in Economics Faculty of Economics www.eprg.group.cam.ac.uk Merchant renewables and the valuation of peaking plant in energy-only markets

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Section: 1mentioning

confidence: 99%

Merchant renewables and the valuation of peaking plant in energy-only markets

Simshauser

2020

Energy Economics

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“…According to this view, price caps are thus at the core of the missing money problem that creates under-investment. 1 The alternative view is that generation capacity has an intrinsic value that is distinct from the sale of energy, i.e., adding new capacity improves reliability even when it is not actually used to produce. The failure to price such externality is thus the root of under-investment.…”

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confidence: 99%

A primer on capacity mechanisms

Fabra

2018

Energy Economics

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A simple model is built up to capture the key drivers of investment and pricing incentives in electricity markets. The focus is put on the interaction between market power and investment incentives, and the trade-o_ it introduces when designing the optimal regulatory instruments. In contrast to the energy-only market paradigm that assumes perfect competition, our model demonstrates that in the presence of market power scarcity prices do not promote efficient investments, even among risk-neutral investors. Combining price caps and capacity payments allows to disentangle the twofold objective of inducing the right investment incentives while mitigating market power. Bundling capacity payments with financial obligations further mitigates market power as long as strike prices are set sufficiently close to marginal costs. Cambridge Working Paper Economics Faculty of Economics www.eprg.group.cam.ac.uk

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“…Conflicting results are also illustrated by Bajo-Buenestado [36], who implemented a two-stage simulation model to understand the impact of CM on Texas (USA) electricity prices, distinguishing only between peak load and base load generation units. Simulations provided two main outcomes: CM causes an increase in the wholesale electricity price, but it also increases the reliability of the power grid and avoids price volatility.…”

Section: Towards An Integrated Electricity Marketmentioning

confidence: 99%

Evaluation of the Administrative Phase-Out of Coal Power Plants on the Italian Electricity Market

Fiorelli¹,

Keles

Montana

et al. 2020

Energies

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Although decarbonisation is one of the most important macro-trends of this century, electricity generation from coal power plants is still broadly common. The main goal of this study is to evaluate the impact of a premature coal power plants phase-out on the Italian day-ahead electricity market. For this purpose, two electricity price forecasts, related to different scenarios between 2019 and 2030, and two different hypotheses for the creation of electricity spot price, were compared. The results from the different scenarios show that coal power plants phase-out determines a small variation in electricity price when bid-up is not considered; instead, when operators’ bid-up is included in the study, the price variation becomes relevant.

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Welfare implications of capacity payments in a price-capped electricity sector: A case study of the Texas market (ERCOT)

Cited by 39 publications

References 42 publications

Merchant renewables and the valuation of peaking plant in energy-only markets

Merchant renewables and the valuation of peaking plant in energy-only markets

A primer on capacity mechanisms

Evaluation of the Administrative Phase-Out of Coal Power Plants on the Italian Electricity Market

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