Why capacity market prices are too high

Todd Aagaard, Andrew Kleit

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

The Federal Energy Regulatory Commission and regional transmission organizations have fixated on a concern that prices in electricity capacity markets are too low. In fact, however, capacity markets are significantly overpriced. The reason for this is that the administratively determined demand curves in capacity markets create conditions that procure far more electricity capacity than what is needed to meet reliability objectives. In particular, the operators of these markets systematically overestimate both the relevant peak demand for electricity and needed payments for generators to enter the market. The result is that consumer pay billions of dollars extra for excess capacity.

Original languageEnglish (US)
Article number101335
JournalUtilities Policy
Volume75
DOIs
StatePublished - Apr 2022

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Development
  • Sociology and Political Science
  • Management, Monitoring, Policy and Law

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