The value of transmission in electricity markets: Evidence from a nuclear power plant closure
Lucas W. Davis, Catherine Hausman 16 June 2014
Estimating the economic value of energy transmission is difficult because investments in transmission capacity are endogenous to market conditions. This column presents recent research that takes advantage of a natural experiment to generate a credible counterfactual. The unexpected closure of the San Onofre Nuclear Generating Station in California increased generation costs by $350 million per year; it also led to increased carbon emissions worth $320 million annually.
Just as free trade in goods offers opportunities for efficiency gains, electricity transmission infrastructure facilitates exchange in electricity markets. The first-order effects of geographic integration in electricity markets are straightforward – allocation of production across firms is improved, so lower cost generating resources can be used to meet demand.
natural gas, nuclear power, electricity transmission, electricity generation