Rethinking Contracts for Purchasing Power: The Economic Advantages of Dispatchability

Gary W. Dorris and Timothy Mount

The Energy Journal, 1994, vol. 15, issue 4, 167-189

Abstract: The purpose of this article is to evaluate and compare the incremental cost of purchased power from non-utility generators (NUG) versus utility built generation considering a variety of contracts for energy purchases. Four types of contracts are evaluated: (1) Flat Rate Produce and Pay, (2) On-Peak/Off-Peak, (3) Basic Dispatchable, and 4) Actual Cycle Energy Dispatch. An analysis conducted for a representative utility calculates the effects of NUG power purchases on a utility's energy production costs and the cost of new debt issuances. Dispatchable energy contracts are shown to provide significant economic and operating advantages over Flat Rate and On-Peak/Off-Peak energy contracts. The analysis also shows that NUG purchases based on the actual costs of dispatch cost less than utility-built generation financed at the utility's weighted average cost of capital. NUG contracts for a utility which already has significant risk exposure are shown to parallel a capital lease. Under these conditions, additional payment obligations to NUGs increase the cost of new debt issuances making an equity issuance for utility built capacity a more attractive option.

Keywords: Power purchase contracts; Dispatchability; Non-utility generation; Electricity prices (search for similar items in EconPapers)
Date: 1994
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/ISSN0195-6574-EJ-Vol15-No4-8 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:15:y:1994:i:4:p:167-189

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-8

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().