Modeling and Analysis of Wholesale Electricity Market Design. Understanding the Missing Money Problem. December 2013 - January 2015
This project examined the impact of renewable energy sources, which have zero incremental energy costs, on the sustainability of conventional generation. This “missing money” problem refers to market outcomes in which infra-marginal energy revenues in excess of operations and maintenance (O&M) costs are systematically lower than the amortized costs of new entry for a marginal generator. The problem is caused by two related factors: (1) conventional generation is dispatched less, and (2) the price that conventional generation receives for its energy is lower. This lower revenue stream may not be sufficient to cover both the variable and fixed costs of conventional generation. In fact, this study showed that higher wind penetrations in the Electric Reliability Council of Texas (ERCOT) system could cause many conventional generators to become uneconomic.