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Incentive Effects of Environmental Adders in Electric Power Auctions

We make a systematic examination of the options for incorporating environmental adders into auctions for non-utility generation. To date, adders have been a popular tool of some regulators for the planning process, but have not been embraced as a tool for operations. We argue that any rational implementation of adders into a competitive acquisition process will have at least an indirect effect on the operations of the resulting electric system. If adders are to be employed, regulators must therefore be comfortable enough with them to use them explicitly in both the operation and selection of generation resources.

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Energy Specializations: Electricity – Markets and Prices ; Energy and the Environment – Other

JEL Codes:
D42 - Market Structure, Pricing, and Design: Monopoly
Q59 - Environmental Economics: Other

Keywords: Environmental adders, Electric power auctions, Electric utilities, Non-utility generation

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No3-4

Published in Volume15, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.