Nodal Pricing and Power Plant Location Decisions

Using data from Texas's wholesale electricity market, we investigate if there is a relationship between nodal prices and investment location decisions of utility-scale generation. We find some evidence that new investment arises in areas with recently elevated nodal prices. However, we find no evidence that new generation resources receive a nodal price premium post-entry as projected by the expectation of higher nodal prices. Further, we employ a regression analysis to test the relationship between expected nodal prices and the probability of entry at a given node. While this analysis finds a positive relationship between expected nodal prices and investment for natural-gas-fueled peaking assets, this relationship is sensitive to model specification. Our findings suggest that factors other than nodal prices are more likely drivers of utility-scale generation capacity investment location decisions in Texas. Speaker: David Brown