1. The use of wholesale market purchases by U.S. electric utilities
- Author
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Sean Murphy, Alan H. Sanstad, Peter H. Larsen, and Juan Pablo Carvallo
- Subjects
Electricity markets ,business.industry ,020209 energy ,Historical analysis ,02 engineering and technology ,010501 environmental sciences ,lcsh:HD9502-9502.5 ,01 natural sciences ,lcsh:Energy industries. Energy policy. Fuel trade ,Profit (economics) ,Renewable energy ,Electric utility ,Procurement ,Incentive ,Capacity planning ,Buy versus build ,Structured interview ,0202 electrical engineering, electronic engineering, information engineering ,Business ,Electricity ,Market transactions ,Industrial organization ,0105 earth and related environmental sciences ,Energy (miscellaneous) - Abstract
Load Serving Entities (LSEs) can procure electricity from their owned generation or purchase it on bilateral or organized markets. Electric utility procurement decisions have important implications for rates, resource adequacy, environmental impacts, and LSE cost recovery. However, there is little or no research on trends of utility procurement practices—or the role of wholesale market transactions. This paper leverages information from the U.S. Department of Energy's Energy Information Administration, Berkeley Lab's Resource Planning Portal, and structured interviews with regulatory and utility staff. We find that use of market transactions to meet electric energy needs has been increasing across U.S. LSEs. The reasons for this trend include a general stagnation in building owned resources, a preference towards contracting renewable energy resources to meet RPS targets, and the lower relative cost of wholesale market electricity. Results suggest resource adequacy obligations may drive preferences for asset ownership more than a profit incentive. We also recommend improving the planning to procurement connection by incorporating operational constraints of market transactions within planning processes. These results provide insights on key issues in electric utility procurement that could improve overall market efficiency and identify practices that stakeholders should consider incorporating into their long-term capacity planning processes.
- Published
- 2020