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The electricity production cost curve during extreme winter weather

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  • Michelfelder, Richard A.
  • Pilotte, Eugene A.

Abstract

This investigation analyzes the characteristics of the largest US wholesale electricity market’s production cost curve and supply curve during the most extreme winter weather event in modern meteorological history. The experience of this event demonstrates that the annual-summer-peak-centric nature of the Northeast US’ PJM capacity planning process does not address the adequacy of supply during the winter. The production cost curve is estimated and compared across recent winter season peak months to understand how large the price responsiveness to load changes can be during extreme winter weather events and how winter weather events can reduce system reliability for a summer-capacity-planning-centric power market. Therefore, PJM and other power pool markets have not considered secondary peak seasons in capacity planning. The shape of the production cost curve discussed herein is a critical component of the structural model and determinant of spot and forward market electricity prices.

Suggested Citation

  • Michelfelder, Richard A. & Pilotte, Eugene A., 2021. "The electricity production cost curve during extreme winter weather," Journal of Economics and Business, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jebusi:v:117:y:2021:i:c:s0148619521000370
    DOI: 10.1016/j.jeconbus.2021.106019
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    References listed on IDEAS

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    More about this item

    Keywords

    PJM; Electricity markets; Extreme weather; Electricity production cost curve; Polar vortex;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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