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2009 State of the Market Report

Executive Summary

primarily due to milder than normal temperatures, reduced economic demand, and the effects of ASM. Although the methodology does not capture several likely impacts of changing fuel prices on generation dispatch, the figure clearly demonstrates that fuel price changes account for a significant share of the year-over-year change in electricity prices.

Finally, one of the most important assessments of the Midwest ISO markets is our evaluation of wholesale prices as signals for investment in new resources and transmission capability. We evaluate wholesale price signals by estimating the “net revenue” that a new generating unit would have earned from the market under prevailing prices. Net revenue is the revenue that a new generator would earn above its variable production costs if it runs when it is economic and does not run when it is not economic. A well-designed market should produce net revenues sufficient to finance new investment when the available resources are not sufficient to meet the needs of the system. Figure E-3 shows estimated net revenues for a hypothetical new combustion turbine (“CT”) and combined-cycle (“CC”) generator for 2007 through 2009.

Figure E-3: Net Revenue Analysis 2007 – 2009

$150,000

5,000

Net Revenue ($/MW-year)

$120,000

$90,000

$60,000

$30,000

Estimated Annual Cost of a New CT and CC

Ancillary Services Energy Capacity Operating Hours

4,000

3,000

2,000

1,000

Operating Hours

$0

0

2007 2008 2009

2007 2008 2009

2007 2008 2009

2007 2008 2009

2007 2008 2009

2007 2008 2009

2007 2008 2009

2007 2008 2009

2007 2008 2009

2007 2008 2009

Central

East

West

WUMS

North WUMS

Central

East

West

WUMS

North WUMS

Combustion Turbine

Combined Cycle

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