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The Performance of the U.S. Market for Independent Electricity Generation

Abstract:
We examine recent evidence on the economic performance of the U.S. independent electricity generation market. A sample of power purchase contracts for 26 independent power facilities is used as the basis of this assessment. The contracts were executed in various years between 1987-94. We describe qualitative features of the contracts, including dispatchability and allocation of fuel price risk. We standardize the price formulas of the contract sample and conduct a simple statistical analysis. Because of residual price variation and an indication that buyer willingness-to-pay is highly correlated with price, we conclude that bulk power sold by independent power producers is a heterogeneous product, and evidence for competition in market prices is weak.

Purchase ( $25 )

Energy Specializations: Energy Investment and Finance – Corporate Strategy; Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes:
D92 - Intertemporal Firm Choice: Investment, Capacity, and Financing
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Independent power producers, electricity prices, electricity industry, competition, deregulation, performance

DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No3-2


Published in Volume17, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.