Efficiency Response of Natural Gas Power Plants to Price in Various Market Structures
Efficiency Response of Natural Gas Power Plants to Price in Various Market Structures
Matthew Doyle, Colorado School of Mines,(720) 217-9986,
Dr. Harrison Fell, Colorado School of Mines, (303) 273-3757,
Intended for the Student Poster Session
Overview
Several papers have analyzed the impact of deregulating U.S. electricity generation on power plant efficiency since market restructuring began in the mid 1990’s. Bushnell and Wolfram (2005) first analyzed operational efficiency of fossil-fueled plants over a period of 1997-2003. They find a 2% increase in fuel efficiency for plants that divested due to state level restructuring. Authors Chan, Fell, Lange and Li (2012) specifically look at U.S. coal-fired plants using panel data from 1991-2005 and find similar fuel efficiency improvements for plants located in restructured states. Davis and Wolfram (2012) take another step and limit their analysis to nuclear plants and again find a 10% increase in operating performance as a result of deregulation. Beyond the deregulation literature, one paper, by Linn, Mastrangelo and Burtraw (2013), find that the fuel efficiency of coal-fired plants responds positively to coal prices. My paper bridges the two concepts of deregulation and input price responsiveness with regards to fuel efficiency. Further, I restrict my analysis to only natural gas fueled generation plants. This supplements the main literature, which thus far has only examined coal, nuclear, or an aggregate of fossil fuels. Since natural gas plants typically run as cycling or peaking plants the incentives for increasing fuel efficiency differ from base load plants, typically coal and nuclear. Using panel data from 1990-2012, this paper answers the questions, “Has deregulation impacted the fuel efficiency of natural gas plants? Is the cost of natural gas a primary driver for improvements in fuel efficiency and if so does the magnitude of this effect vary across market structures?”
Methods
The primary methodology of this analysis is a differences-in-differences approach, using regulated states as the control group and deregulated states as the treatment.
Results
Preliminary findings show mixed results as fuel efficiency of these gas plants depends on numerous factors including market structure, natural gas price, market capacity profile, plant specific technology and regional electricity demand.Combined cycle plants are about 5% more efficient in deregulated states. There is no significant difference for open-cycle plants. Combined cycle plants respond to input price; whereas open-cycle plants do not respond. There is no difference in the price response between regulated and unregulated for either combined-cycle nor open-cycle.
Conclusions
This research is a tool to guide public policy with regards to the current structure of electricity markets. Due to the heterogeneous nature of generation across the US, the optimal policy for the Electric Reliability Council of Texas (ERCOT) may not hold for the PJM interconnection in the north east. By controlling for numerous variables, including the price of natural gas, this research provides key insights to the operating decisions of natural gas plant generators for various regions across the country.
References
Bushnell, J. B., & Wolfram, C. (2005). Ownership Change, Incentives and Plant Efficiency: The Divestiture of U.S. Electric Generation Plants. Berkeley: University of California Energy Institute.
Chan, H., Fell, H., Ian, L., & Shanjun, L. (2012). Efficiency and Environmental Impacts of Electricity Restructuring on Coal-fired Power Plants. Department of Economics,University of Maryland
Davis, L., & Wolfram, C. (2011). Deregulation, Consolidation, and Efficiency: Evidence from U.S. Nuclear Power. Berkeley: Energy Institute at Haas.
Linn, J., Mastrangelo, E., & Burtraw, D. (2013). Regulating Greenhouse Gases from Coal Power Plants under the Clean Air Act. Washington, DC: Resource for the Future.