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Market price behavior of wholesale electricity products: Texas

Author

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  • Zarnikau, J.
  • Woo, C.K.
  • Zhu, S.
  • Tsai, C.H.

Abstract

Applying a regression-based approach to a newly developed sample of over 60,000 hourly observations for 01/01/2011–12/30/2017, we answer the question: what moves the day-ahead market (DAM) prices for energy and ancillary services (AS) and the real-time market (RTM) price for energy in the Electric Reliability Council of Texas (ERCOT)? Our answer comprises the following findings that capture the interdependence of ERCOT's energy and AS products: (1) the DAM energy price increases with the day-ahead forecasts of natural gas price, system load and AS requirements but declines with nuclear and wind generation's forecasts; (2) the AS prices increase with the DAM energy price and the AS procurement forecasts but decline with the AS offer forecasts; and (3) the RTM energy price increases with the DAM energy price but diverges from the DAM energy price due to forecasting errors related to the DAM energy price's fundamental drivers. These findings imply that Texas can reduce the prices for day-ahead energy, day-ahead AS and real-time energy via wind generation development and demand-side-management. Further, Texas can improve its electricity trading efficiency by improving ERCOT's forecast accuracy to narrow the RTM energy price's divergence from the DAM energy price.

Suggested Citation

  • Zarnikau, J. & Woo, C.K. & Zhu, S. & Tsai, C.H., 2019. "Market price behavior of wholesale electricity products: Texas," Energy Policy, Elsevier, vol. 125(C), pages 418-428.
    • Handle: RePEc:eee:enepol:v:125:y:2019:i:c:p:418-428
    DOI: 10.1016/j.enpol.2018.10.043
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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