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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 ()
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Chi-Keung Woo: Education University of Hong Kong

Journal of Regulatory Economics, 2020, vol. 58, issue 2, No 1, 99-140

Abstract: Abstract Using data from Texas’s wholesale electricity market, we investigate the 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, a logit regression analysis suggests that the probability of natural-gas-fired generation investments tends to increase with expected nodal prices in peak hours. However, the estimated relationship is statistically and economically weak and sensitive to model specification. These findings suggest other factors are more important drivers than nodal prices of location decisions for utility-scale generation investments 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)
Date: 2020
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DOI: 10.1007/s11149-020-09413-0

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