Date of Award
Spring 1-1-2017
Document Type
Dissertation
Degree Name
Doctor of Philosophy (PhD)
Department
Economics
First Advisor
Daniel T. Kaffine
Second Advisor
Scott Savage
Third Advisor
Yongmin Chen
Fourth Advisor
Chrystie Burr
Fifth Advisor
Adam Reed
Abstract
Electricity is a large and crucial US industry, with annual sales and investment of $390 billion and $80 billion respectively. Two important topics in the industry, over the past 25 years, are the restructuring of state markets and variation electricity demand. Both changes occurred during the largest increase in electricity capacity in US history, the “Gas Boom,” which increased generating capacity by over 33 percent. This thesis links these topics with the increase in gas capacity and estimates their effect on electricity industry investment and prices.
Chapter 1 estimates the effect of restructuring on US power plant investment, finding states that took steps toward retail competition built, on average, 593 MW more gas-fired CCGT power plants than if regulation had remained in place. Evidence of oversupply, bankruptcies, and falling capacity factors suggests this entry was excessive. Chapter 2 investigates the cause and cost of this excessive entry, finding it consistent with contagion, manager overconfidence, and falling long- term interest rates. The welfare cost is estimated to be $10.8 billion. Chapter 3 provides a first estimate of the impact of demand variance on electricity prices, finding an increase of 10 percent in demand variance leads to an increase of 9.7 percent in average state electricity prices. This impact was found to be significant across all three sectors of electricity use. These findings inform policymaker decisions in the future, suggesting states concern themselves with the lower and upper bound of capacity investment, while encouraging more measures to reduce daily and seasonal demand variation.
Recommended Citation
Hill, Alexander McGavock, "Excessive Entry, Investment and Congestion Cost in the Electricity Industry" (2017). Economics Graduate Theses & Dissertations. 77.
https://scholar.colorado.edu/econ_gradetds/77