Date of Graduation
Davis College of Agriculture, Natural Resources and Design
Agricultural and Resource Economics
U.S. electric utilities retired 47% of their coal-fired generation capacity between 2008-2017 and have plans to continue decreasing this capacity through 2020. This means that areas of the U.S., like the Pennsylvania-New Jersey-Maryland Interconnection (PJM) Regional Transmission Organization, not only have experienced, but will continue to experience major shifts in its energy fuel mix and available electricity generation capacity. On June 1, 2015, the American Electric Power (AEP) zone experienced the retirement of 5,408 MW of coal-fired generation capacity from the wholesale electricity market. This research analyzes the impacts of this retirement on wholesale prices, i.e., locational marginal price (LMP) of electricity. Demand-side analyses of wholesale electricity prices are performed by regressing LMP against electricity demand variables. These variables include: the generation forecast error occurring from differences between forecasted day-ahead electricity consumption and real-time consumption, degree cooling and heating days, and accounting for hourly, daily, and seasonal differences in electricity consumption. Regression analyses were performed for six zones within the PJM for a 24-month period from June 1st, 2014 – June 1st, 2016, thus including 12 months of available data before and after the capacity retirement. Four analyses were created to measure the effects of consumption forecast error and coal-fired capacity retirement timing on LMP. The results from the four analyses demonstrate that: (1) average LMP in all zones decreased by between 16.6% and 29.2% if coal-fired generation capacity was projected to retire a year earlier than its observed retirement, and (2) average LMP in all zones increased by between 15.0% and 26.9% if this capacity was projected not to retire. The outcomes also showed early retirement of the coal-fired capacity resulted in more stable LMPs. The magnitude of percent decreases in LMP in the top 5% of observations was much larger during the early retirement analyses compared to the no retirement analyses. These price trends align with the national wholesale electricity price averages decreasing from June 1st, 2014 – June 1st, 2016. Thus, each of the six PJM zones did not experience any observed adverse effects on LMP from retirement of coal-fired generation capacity.
O'Conor, Michael C., "The Effects of Coal Capacity Retirement on Wholesale Electricity Prices: A Demand Side Analysis" (2019). Graduate Theses, Dissertations, and Problem Reports. 7480.