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Spillovers from ancillary services to wholesale energy markets

Author

Listed:
  • Jesse Buchsbaum
  • Catherine Hausman
  • Johanna L Mathieu
  • Jing Peng

Abstract

In electricity markets, generators are rewarded for providing energy and for enabling grid reliability. The two functions are compensated separately: with energy market payments and ancillary services market payments. We provide evidence of changes in the generation mix in the energy market that are driven by exogenous changes in an ancillary services market. We provide a theoretical framework and quasi‐experimental evidence for understanding the mechanism: it results from the multi‐product nature of power plants combined with discontinuities in costs. Although much research focuses solely on the energy market, our results suggest that spillovers between the two markets are important.

Suggested Citation

  • Jesse Buchsbaum & Catherine Hausman & Johanna L Mathieu & Jing Peng, 2024. "Spillovers from ancillary services to wholesale energy markets," RAND Journal of Economics, RAND Corporation, vol. 55(1), pages 87-111, March.
    • Handle: RePEc:bla:randje:v:55:y:2024:i:1:p:87-111
    DOI: 10.1111/1756-2171.12459
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    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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