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  3. American Economic Review
  4. May 2011
  5. Measuring the Benefits of Greater Spatial Granularity in Short-Term Pricing in Wholesale Electricity Markets

Measuring the Benefits of Greater Spatial Granularity in Short-Term Pricing in Wholesale Electricity Markets

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Abstract

Hourly generation unit-level output levels, detailed information on the technological characteristics of generation units, and daily delivered natural gas prices to all generation units for the California wholesale electricity market before and after the implementation of locational marginal pricing are used to measure the impact of introducing greater spatial granularity in short-term energy pricing. The average hourly number of generation unit starts increases, but both the total hourly energy consumed and total hourly operating costs for all natural gas-fired generation units fall by more than 2 percent after the implementation of locational marginal pricing.

Citation

Wolak, Frank A. 2011. "Measuring the Benefits of Greater Spatial Granularity in Short-Term Pricing in Wholesale Electricity Markets." American Economic Review, 101 (3): 247-52. DOI: 10.1257/aer.101.3.247

JEL Classification

  • L94 Electric Utilities
  • L98 Industry Studies: Utilities and Transportation: Government Policy
  • Q41 Energy: Demand and Supply
  • Q48 Energy: Government Policy