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The Effect of Capacity Payments on Peaking Generator Availability in PJM

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MESW02 - Electricity systems of the future: incentives, regulation and analysis for efficient investment

We study the effects of capacity payments on the strategic decisions of plant managers for peaking units in the PJM Interconnection. We achieve this through a structural estimation of maintenance and switching costs between the operational state, the standby state and retirement of generating units, using annual data from 2001-2016. The empirical data shows less switching between states after the introduction of capacity remunerations in 2007. We find that the role of peaking units has changed, with the units being dispatched more often. In the counterfactual analysis, we find a clear connection between the level of capacity payments and switching. We conclude that the current level of capacity payments in PJM incentivizes peaking units to stay in the operational state.

Stein-Erik Fleten (with Benjamin Fram, Magne Ledsaak, Sigurd Mehl, Ola Røssum, Carl Ullrich)

This talk is part of the Isaac Newton Institute Seminar Series series.

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