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Measuring Gains from Regional Dispatch: Coal-Fired Power Plant Utilization and Market Reforms

Abstract:
This paper examines changes in the utilization rates (annual capacity factors) of coal-burning power plants in the eastern United States after 1996, when federal regulators opened the transmission system to wholesale power markets. This and other accompanying market-oriented reforms were intended to improve efficiency by encouraging regional dispatch by independent system operators. If the reforms made dispatch more efficient, then utilization rates of high-cost plants should have fallen relative to those of low-cost plants since 1996. A difference-in-difference model using plant-level panel data indicates that relative utilization rates of high-cost plants did indeed fall after 1996, but only in regions with independent system operators. Simulations indicate cost savings on the order of two to three percent.

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Energy Specializations: Coal – Markets and Prices; Coal – Policy and Regulation; Electricity – Generation Technologies; Electricity – Policy and Regulation

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q53 - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Q2 -
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Utilization rates, annual capacity factors, Coal-fired power, Eastern US, efficiency

DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No1-7


Published in Volume 27, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.