Follow the Missing Money: Ensuring Reliability at Least Cost to Consumers in the Transition to a Low-Carbon Power System
Date Published: February 2017
Author: Michael Hogan
This article offers a brief refresher on how we should expect energy prices to form in a modern system and the ways in which prices should be expected to shape critical investment decisions. The author lays out a robust and sustainable approach to ensuring a reliable, low-carbon electricity supply at the lowest reasonable cost. The author finds that some combination of improved price formation and administrative scarcity pricing mechanisms should be given an opportunity to succeed before resorting to more restrictive regulatory measures, especially where a proper resource adequacy assessment would indicate that the need for more capacity is years in the future, as is the case in most of North America and Europe. This approach can both address the problem of “missing money,” the idea that prices do not fully support new investment, and ensure that the risks and rewards for investment are not misallocated.