Are gas turbines ‘bankable’ in transitioning energy-only markets?

From their inception, the energy-only electricity market design has been characterised by policymaker concerns of resource adequacy. Spot market price ceilings set too low and lacking a clear nexus with reliability criteria, capricious regulatory interference into otherwise legitimate scarcity pricing events, and a lack of demand-side participation are all thought to make the task of timely entry of requisite reserve plant intractable, and therefore ‘un-bankable’. The exceptionally volatile nature of peaking plant spot market revenues is said to have been amplified by ‘merit order effects’ associated with the entry of near-zero marginal cost intermittent renewables. Large structural LP utility planning models may produce reliable forecasts of market averages, but struggle to replicate ex ante what will be an energy-only markets' high-end volatility, ex post. The latter frequently underpins entry frictions facing peaking gas turbines. In this article, a stochastic block bootstrapping modelling framework is applied to Australia's energy-only National Electricity Market setting – where the spot market price ceiling does have a tight nexus with reliability criteria. The market is also characterised by looming coal plant closures. While reliance on spot market revenues proves problematic for bankability purposes, when combined with $300 Cap derivatives from the forward markets, a tractable result emerges.