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The Impact of Long-Term Generation Contracts on Valuation of Electricity Generating Assets under the Regional Greenhouse Gas Initiative

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Author Info

  • Burtraw, Dallas

    ()
    (Resources for the Future)

  • Palmer, Karen

    ()
    (Resources for the Future)

  • Wilson, Nathan

Abstract

The Regional Greenhouse Gas Initiative is an effort by nine states to constrain carbon dioxide emissions from the electric power sector using a cap-and-trade program. This paper assesses the importance of long-term electricity contracts under the program. We find that 12.2% of generation will be accounted for by long-term contracts in 2010, affecting select nuclear, hydroelectric, and cogeneration units. The contracts will have a negligible effect on the wholesale marginal cost of electricity and a small effect on retail price. States may want to consider contracts on a case-by-case basis when making decisions about the initial distribution of emission allowances, but they should account for effects on the portfolio of plants owned at the firm level, not the effects on individual facilities. Because of their relatively small effect, it seems unnecessary to allow the existence of long-term contracts to dictate the design of the overall program.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-05-37.

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Date of creation: 08 Aug 2005
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Handle: RePEc:rff:dpaper:dp-05-37

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Keywords: climate; state policy; Regional Greenhouse Gas Initiative; long-term contracts; electricity;

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  1. Burtraw, Dallas & Palmer, Karen & Kahn, Daniel, 2005. "Allocation of CO2 Emissions Allowances in the Regional Greenhouse Gas Cap-and-Trade Program," Discussion Papers dp-05-25, Resources For the Future.
  2. Borenstein, Severin & Bushnell, James, 2000. "Electricity Restructuring: Deregulation or Reregulation?," Competition Policy Center, Working Paper Series qt22d2q3fn, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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Cited by:
  1. Burtraw, Dallas & Palmer, Karen & Kahn, Daniel, 2005. "CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors," Discussion Papers dp-05-55, Resources For the Future.
  2. Meredith Fowlie, 2008. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," NBER Working Papers 14421, National Bureau of Economic Research, Inc.
  3. Palmer, Karen & Butraw, Dallas & Kahn, Danny, 2006. "Simple Rules for Targeting CO2 Allowance Allocations to Compensate Firms," Discussion Papers dp-06-28, Resources For the Future.

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