Does locational marginal pricing impact generation investment location decisions? An analysis of Texas's wholesale electricity market

David P. BROWN, Jay ZARNIKAU, Chi Keung WOO

Research output: Contribution to journalArticlespeer-review

Abstract

Using data from Texas's wholesale electricity market, we investigate the 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, a logit regression analysis suggests that the probability of natural-gas-fired generation investments tends to increase with expected nodal prices in peak hours. However, the estimated relationship is statistically and economically weak and sensitive to model specification. These findings suggest other factors are more important drivers than nodal prices of location decisions for utility-scale generation investments in Texas. Copyright © 2020 Springer Science+Business Media, LLC, part of Springer Nature.
Original languageEnglish
Pages (from-to)99–140
JournalJournal of Regulatory Economics
Volume58
Issue number2-3
Early online dateAug 2020
DOIs
Publication statusPublished - Dec 2020

Citation

Brown, D. P., Zarnikau, J., & Woo, C.-K. (2020). Does locational marginal pricing impact generation investment location decisions? An analysis of Texas's wholesale electricity market. Journal of Regulatory Economics, 58(2-3), 99–140. doi: 10.1007/s11149-020-09413-0

Keywords

  • Electricity
  • Regulation
  • Entry
  • Locational marginal pricing

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