Ex post payoffs of a tolling agreement for natural-gas-fired generation in Texas

Yun LIU, Chi Keung WOO, Jay W. ZARNIKAU

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5 Citations (Scopus)

Abstract

To explore the problem of insufficient investment incentive for natural-gas-fired generation in Electricity Reliability Council of Texas (ERCOT), we use a large sample of over 134,000 15-minute observations in the 46-month period of 01/01/2011 – 10/31/2014 to estimate the effects of several fundamental drivers on the ex post payoffs of three hypothetical tolling agreements by heat rate. Our assumed heat rates reflect those of a new combined cycle gas turbine (CCGT), a new combustion turbine (CT) and an old CT. The fundamental drivers are postulated to be the natural-gas price, regional loads, nuclear generation, and wind generation. We find rising natural-gas price and non-West regional loads tend to increase the agreements’ ex post payoffs. These payoff increases, however, were reduced by rising West regional load, nuclear generation and wind generation. Finally, we find a substantial payoff decline due to large-scale wind generation development in Texas, lending support to the suggestion of ERCOT’s transition from an energy-only market to an energy-and-capacity market. Copyright © 2015 Incisive Risk Information (IP) Limited.
Original languageEnglish
Pages (from-to)21-45
JournalThe journal of energy markets
Volume9
Issue number1
Publication statusPublished - Apr 2016

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Citation

Liu, Y., Woo, C. K., & Zarnikau, J. (2016). Ex post payoffs of a tolling agreement for natural-gas-fired generation in Texas. The journal of energy markets, 9(1), 21-45.

Keywords

  • Tolling agreement
  • Ex post payoffs
  • Natural-gas-fired generation
  • Investment incentive
  • ERCOT