Economics at your fingertips  

Vertical integration, peaking plant commitments and the role of credit quality in energy-only markets

Paul Simshauser ()

Energy Economics, 2021, vol. 104, issue C

Abstract: Resource adequacy in energy-only markets is of continual interest to policymakers and in Australia has historically been navigated via energy retailer investment commitments in peaking plant capacity. This in turn has been driven by the National Electricity Market's very high Market Price Cap (AUD $15,000/MWh). The market is rapidly transitioning with rising levels of renewables and coal plant closures. Ironically however, investment commitments in peaking plant capacity by major energy retailers has stalled. This raises the question as to whether the model of vertical integration, a pattern which dominated energy-only markets, has somehow broken down. In this article, peaking plant dynamics are tested using historic data – first as a stand-alone generator, then as part of a merged vertical entity over 16 years of trade. Results reveal the canonical merchant peaking plant remains too risky as a stand-alone project financing, but vertical integration and energy retailer incentives to commit to on-balance sheet peaking plant remains strong, with transaction cost synergies of 13% and investment grade credit quality being contingent on integration. Any lack of commitment must be explained by other variables.

Keywords: Energy markets; Resource adequacy; Project finance; Peaking plant; Vertical integration; Transaction costs (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

DOI: 10.1016/j.eneco.2021.105612

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2022-09-24
Handle: RePEc:eee:eneeco:v:104:y:2021:i:c:s0140988321004783