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2009 State of the Market Report

Executive Summary

The VCA cleared at very low prices in all months except July, when the auction cleared at a high price due to large amounts of capacity that were not offered competitively.3

As discussed above, the energy price reductions in 2009 were largely driven by lower fuel prices. To estimate the price effects of other factors, we calculate a fuel price-adjusted system marginal price (“SMP”), shown in Figure E-2 below. To calculate this metric, each interval’s SMP was indexed to the average two-year fuel price of the marginal fuel during the interval. The price- setting fuel for each interval was assumed to be the fuel that was most frequently on the margin during the particular interval (more than one fuel can be on the margin in a single interval). This metric does not account for changes in commitment or dispatch that may occur under different levels of fuel prices.

Figure E-2: Fuel Price-Adjusted System Marginal Price 2008 – 2009

$80

System Marginal Price ($/MWh)

$70

$60

$50

$40

$30

$20

Average Fuel-Adjusted SMP Average SMP

$10

$0

08 09 J

FMAM J J A S OND J

FMAMJ J

A S OND

2008

2009

Average fuel-adjusted energy prices fell almost 15 percent in 2009. This reduction was

3

Although little capacity cleared, the spot price is used to estimate the market’s capacity costs for the month, so it is sizable in July.

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