The Value of Trans­mis­sion in Elec­tric­ity Mar­kets: Evi­dence from a Nuclear Power Plant Closure

The San Onofre Nuclear Gen­er­at­ing Sta­tion (SONGS) was closed abruptly and per­ma­nently in Feb­ru­ary 2012. Dur­ing the pre­vi­ous decade, SONGS had pro­duced about 8% of the elec­tric­ity gen­er­ated in Cal­i­for­nia, so its clo­sure had a pro­nounced impact on the whole­sale mar­ket, requir­ing large and imme­di­ate increases in gen­er­a­tion from other sources. In this paper we use pub­licly avail­able micro-data from a vari­ety of sources to exam­ine the impact of the clo­sure on mar­ket out­comes. We find that in the 12 months fol­low­ing the clo­sure, almost all of the lost gen­er­a­tion from SONGS was met by nat­ural gas plants inside Cal­i­for­nia at an aver­age cost of $68,000 per hour. Dur­ing high load hours, we find that as much as 75% of the lost gen­er­a­tion was met by plants located in the south­ern part of the state. Although lower-cost pro­duc­tion was avail­able else­where, trans­mis­sion con­straints and other phys­i­cal lim­i­ta­tions of the grid severely lim­ited the abil­ity of other pro­duc­ers to sell into the south­ern Cal­i­for­nia mar­ket. The trans­mis­sion con­straints also made it poten­tially more prof­itable for cer­tain plants to exer­cise mar­ket power, and we find evi­dence con­sis­tent with one com­pany act­ing non-competitively.

Speaker: Lucas Davis, UC Berkeley