Association Webinars: Nodal Pricing and Power Plant Location Decisions

  

Using data from Texas's wholesale electricity market, we investigate if there is a relationship between nodal prices and investment location decisions of utility-scale generation. We find some evidence that new investment arises in areas with recently elevated nodal prices. However, we find no evidence that new generation resources receive a nodal price premium post-entry as projected by the expectation of higher nodal prices. Further, we employ a regression analysis to test the relationship between expected nodal prices and the probability of entry at a given node. While this analysis finds a positive relationship between expected nodal prices and investment for natural-gas-fueled peaking assets, this relationship is sensitive to model specification. Our findings suggest that factors other than nodal prices are more likely drivers of utility-scale generation capacity investment location decisions in Texas.

Speaker:
David Brown is an Associate Professor at the University of Alberta's Department of Economics and the President of the Canadian Association for Energy Economics. His research lies at the intersection of energy economics, industrial organization, and regulatory policy with a focus on the impacts of regulatory policies on the performance of electricity markets. This includes research that measures market power execution in wholesale power markets, analyzes the impacts of mergers and market structure changes, designing regulations to motivate utilities to invest in cost-effective distributed energy resources, and analyzing the impacts of compensation policies on renewable investment in imperfectly competitive markets.

 

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