Does Locational Marginal Pricing Impact Generation Investment Location Decisions? An Analysis of Texas's Wholesale Electricity Market

David Brown, Jay Zarnikau () and Chi-Keung Woo

No 2020-1, Working Papers from University of Alberta, Department of Economics

Abstract: 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.

Keywords: Electricity; Regulation; Entry; Locational Marginal Pricing (search for similar items in EconPapers)
JEL-codes: L11 L51 L94 Q41 Q48 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-01-17
New Economics Papers: this item is included in nep-com, nep-ene, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Journal Article: Does locational marginal pricing impact generation investment location decisions? An analysis of Texas’s wholesale electricity market (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2020_001

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