The Seemingly Futile Search for the “Missing Money”

01 May 2018
Dr. Jeff D. Makholm

In an upcoming article in the May 2018 issue of the Wiley journal Natural Gas & Electricity, NERA Managing Director Dr. Jeff D. Makholm discusses the search for “missing money” in modern power markets. The term “missing money” is used to describe the perceived gap in funds needed to induce competitive producers to invest in sufficient generation capacity to serve peak electrical loads. It has become increasingly evident both in US and UK power markets that energy-only markets are not sufficient, by themselves, to assure long-term resource adequacy (i.e., sufficient power resources of all types to support evident electrical load) in those markets. In both US and UK power markets, various alternatives exist or are being planned to complement energy-only markets (e.g., capacity markets, “pay for performance” markets, subsidies to support nuclear power plants in specific states) to support the kind of generation capacity that regulators think the public needs, particularly as the wider generating fleet admits more renewable electricity resources.

In the article, Dr. Makholm considers whether we are slated to keep searching for missing money with increasingly complicated capacity market actions or special add-ons (non-market tools), or if there is a “missing regulation” component to the problem.

As a case study, Dr. Makholm explores the New England power market—unique in the United States as having no indigenous fossil fuels and being at “the end of the line” for gas supply for its quickly-growing gas-fired combined-cycle generation fleet. Dr. Makholm argues that the financing (i.e., the missing money) needed to increase pipeline capacity for that fleet is not forthcoming in competitive power prices, but could be found by allowing state regulatory action to commit ratepayer funds to power markets. His example illustrates that some infrastructure assets needed for efficient and low-cost modern energy markets need regulated buyers.

Makholm, Jeff D. (2018, May). The Seemingly Futile Search for the “Missing Money.” Natural Gas & Electricity 34/10, ©2018 Wiley Periodicals, Inc., a Wiley company.