Electricity markets: States reassert authority over power generation
In his report, Electricity Markets: States Re-assert Authority over Power Generation, Gavin Bade analyzes how federal regulators are trying to find a balance between market and state by maximizing the benefits of electricity markets but also dictating their outcomes.
Originally, power generation was de-regulated to let the market’s supply and demand dictate if power plants were to be made or destroyed. However, regulators have become increasingly dissatisfied with the outcome of the market, causing the implementation of nuclear subsidies and renewable energy mandates to support cleaner energy. While these efforts have helped in environmental preservation, they frustrate fossil fuel companies who claim that these regulations are depressing market clearing prices for unsubsidized resources, therefore cutting into their revenue. This has resulted in conflict and much work to be done by the Federal Energy Regulatory Commission (FERC).
This relates to market clearing prices in INFO 2040 as regulations protecting the environment would decrease the price of subsidized resources, increasing net value, therefore decreasing the overall market clearing price. Originally, many people may have preferred using fossil fuels because the price was cheaper, therefore making their net value greater. However, by decreasing the prices of “cleaner” energy sources through subsidies, the government can successfully make the value a consumer receives from using fossil fuels and sustainable resources the same, taking away from the fossil fuel customer base. In some cases, government intervention of the market has even caused the price of sustainable energies to dip below the price of fossil fuels and other old-fashioned energies. Due to this, many fossil fuel companies are attempting to implement a strict price floor and a capacity repricing scheme via FERC. These new legislations would result in yet a different market clearing price depending on how they pan out and how consumers value each option after their values have been adjusted according to new prices.