| ID | 150438 |
| Title Proper | Merit-order effects of renewable energy and price divergence in California’s day-ahead and real-time electricity markets |
| Language | ENG |
| Author | Woo, C K ; Ho, T ; Moore, J ; Schneiderman, B |
| Summary / Abstract (Note) | We answer two policy questions: (1) what are the estimated merit-order effects of renewable energy in the California Independent System Operator’s (CAISO’s) day-ahead market (DAM) and real-time market (RTM)? and (2) what causes the hourly DAM and RTM prices to systematically diverge? The first question is timely and relevant because if the merit-order effect estimates are small, California’s renewable energy development is of limited help in cutting electricity consumers’ bills but also has a lesser adverse impact on the state’s investment incentive for natural-gas-fired generation. The second question is related to the efficient market hypothesis under which the hourly RTM and DAM prices tend to converge. Using a sample of about 21,000 hourly observations of CAISO market prices and their fundamental drivers during 12/12/2012–04/30/2015, we document statistically significant estimates (p-value≤0.01) for the DAM and RTM merit-order effects. This finding lends support to California’s adopted procurement process to provide sufficient investment incentives for natural-gas-fired generation. We document that the RTM-DAM price divergence partly depends on the CASIO’s day-ahead forecast errors for system loads and renewable energy. This finding suggests that improving the performance of the CAISO’s day-ahead forecasts can enhance trading efficiency in California’s DAM and RTM electricity markets. |
| `In' analytical Note | Energy Policy Vol. 92, No.92; May 2016: p.299–312 |
| Journal Source | Energy Policy 2016-05 92, 92 |
| Key Words | California ; Renewable Energy ; Electricity Prices ; Day-ahead Market ; Real-Time Market ; Merit-Order Effects |