The money has gone to pay power plants that can supply winter capacity, exactly as the market is designed to do.

The intention of the payments is to increase revenue for that kind of power generation capability to encourage more such plants be constructed.

The argument in the article is dubious to me. Of course the higher price isn’t leading to more generation today, that’s not the point, the point is to reward developers that build and built capacity CA needs in winter. The disagreement then becomes which model is correct about how much capacity is actually needed.. but the fact that a tiny move in demand moves the price so substantially seems to me to undermine the entire premise of the blog post, clearly supply is severely constrained?

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dgacmu 2 hours ago | parent | next [-]

But that's why they're arguing that repricing the entire generation fleet is bad compared to having a different auction for new capacity. You don't need the same incentives to keep an existing, profitable plant online as you do to invest in a new plant.

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jakewins 2 hours ago | parent [-]

I can assure you the spreadsheets at firms building plants factor in forecasts of revenue for the life of the plant into investment decisions. If they don’t pay past the first few years, that directly translates to lower forecast lifetime plant value for new plants.

I’m not a quant, and I’ve worked energy trading desks long enough to know there is a lot I don’t understand.. but I don’t see how separating auctions by plant age does anything other than move numbers around while keeping the total bill the same. Plants still need the same lifetime revenue to make investment decisions pencil out; whether you front-load payments or spread them evenly, the total in current value needs to be the same.

	▲	zmgsabst 2 hours ago \| parent [-]
		Even if the total cost is the same, if our payments better align with the behavior we want to incentivize, we may gain greater utility from the spending. So it can matter how we distribute that revenue as to whether or not the business responds in the desired way, eg, actually investing in new capacity by linking payments directly to new capacity.

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bjourne an hour ago | parent | prev [-]

What's to say that encouragement works? Does the 12B subsidy stipulate that more plants must be built? If not, keeping supply limited and price per Watt high may be more profitable.