Program on Energy and Sustainable Development, page(s): 23
This study quantifies the economic and environmental impacts associated with the change from a zonal to nodal design in the Texas electricity market. To begin, we present a framework to understand the mechanisms that lead to inefficient outcomes under a zonal market model. Then, we estimate a semiparametric partially linear conditional mean function to quantify changes in selected market metrics for the same set of underlying system conditions after versus before the implementation of the nodal market design. We estimate that daily variable costs of thermal generation given the same level of daily output fell by 3.9% with the implementation of the nodal market design. In contrast, we find that total heat input and CO2 emissions increased with the market design change. We show how changes in operation of coal and natural gas technologies contributed to these outcomes, and find that a large proportion of the daily variable cost savings was due to the synergies achieved through increased efficiency of operation of these two technologies.