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Is the Merchant Power Producer a broken model?☆☆The views expressed in this paper are those of the authors and any errors or omissions remain the responsibility of the authors

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  • Nelson, James
  • Simshauser, Paul

Abstract

Deregulated energy markets were founded on the Merchant Power Producer, a stand-alone generator that sold its production to the spot and short-term forward markets, underpinned by long-dated project finance. The initial enthusiasm that existed for investment in existing and new merchant power plant capacity shortly after power system deregulation has progressively dissipated, following an excess entry result. In this article, we demonstrate why this has become a global trend. Using debt-sizing parameters typically used by project banks, we model a benchmark plant, then re-simulate its performance using live energy market price data and find that such financings are no longer feasible in the absence of long-term Power Purchase Agreements.

Suggested Citation

  • Nelson, James & Simshauser, Paul, 2013. "Is the Merchant Power Producer a broken model?☆☆The views expressed in this paper are those of the authors and any errors or omissions remain the responsibility of the authors," Energy Policy, Elsevier, vol. 53(C), pages 298-310.
    • Handle: RePEc:eee:enepol:v:53:y:2013:i:c:p:298-310
    DOI: 10.1016/j.enpol.2012.10.059
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    References listed on IDEAS

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    1. Nelson, Tim & Nelson, James & Ariyaratnam, Jude & Camroux, Simon, 2013. "An analysis of Australia's large scale renewable energy target: Restoring market confidence," Energy Policy, Elsevier, vol. 62(C), pages 386-400.

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