Modeling and Analysis of Wholesale Electricity Market Design: Understanding the Missing Money Problem; December 2013 - January 2015

NREL commissioned ECCO International, Inc. (ECCO), to study how high penetrations of VG will affect the outcomes of markets and incentives of the various pieces of the wholesale structure (energy, ancillary services, settlements, forward capacity) and what, if any, market design changes can improve incentives to ensure long-term power system reliability and efficiency. 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.