Blowing in the wind: Vanishing payoffs of a tolling agreement for natural-gas-fired generation of electricity in Texas

Chi-Keung WOO*, Ira Horowitz, Brian Horii, Ren Orans, Jay Zarnikau

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

31 Citations (Scopus)

Abstract

We use a large Texas database to quantify the effect of rising wind generation on the payoffs of a tolling agreement for natural-gas-fired generation of electricity. We find that while a 20% increase in wind generation may not have a statistically-significant effect, a 40% increase can reduce the agreement's average payoff by 8% to 13%. Since natural-gas-fired generation is necessary for integrating large amounts of intermittent wind energy into an electric grid, our finding contributes to the policy debate of capacity adequacy and system reliability in a restructured electricity market that will see large-scale wind-generation development.

Original languageEnglish
Pages (from-to)207-230
Number of pages24
JournalEnergy Journal
Volume33
Issue number1
DOIs
Publication statusPublished - 2012

Scopus Subject Areas

  • Economics and Econometrics
  • Energy(all)

User-Defined Keywords

  • Investment incentive
  • Spark spread option
  • Tolling agreement
  • Wind generation

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