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Technology Choices in the U.S. Electricity Industry before and after Market Restructuring

Abstract:
We study the drivers of the adoption of electricity generation technologies between 1970 and 2014 in the lower 48 U.S. states. Since the 1990s, major electricity market restructuring took place in some parts of the United States. We explore the implications of changing from a regulated "cost-of-service", or rate of return, system to liberalized wholesale electricity markets on technology and fuel choices. We find that wholesale market restructuring resulted in significant immediate investment in various natural gas technologies due to higher expected profits, and a reduction in coal investments. In states that adopted liberalized wholesale electricity markets, higher natural gas price expectations resulted in more investment in coal and renewable technologies, while higher coal price expectations resulted in lower coal-fired baseload power investments. Natural gas price expectations, therefore, have the potential to significantly shape the power generation landscape of the future.Keywords: Technology choices, Electricity industry, Market restructuring

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Energy Specializations: Electricity – Generation Technologies; Electricity – Markets and Prices

JEL Codes: Q40: Energy: General, Q41: Energy: Demand and Supply; Prices, Q48: Energy: Government Policy, O33: Technological Change: Choices and Consequences; Diffusion Processes

Keywords: Technology choices, Electricity industry, Market restructuring

DOI: 10.5547/01956574.39.5.zcse

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Published in Volume 39, Number 5 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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