In Energy Economics, CRA’s Ignacio Núñez presents an analytical model for determining the optimal mix of thermal generation capacity in electricity markets.
Co-authored with Alexander Galetovic, the research builds on the load duration curve framework by incorporating reserve requirements—specifically regulation-up and regulation-down reserves. These reserves are needed to maintain grid reliability and compensate for unexpected fluctuations in energy consumption and production.
The study shows that regulation-up reserves increase total capacity needs across both baseload and peak load technologies, while regulation-down reserves shift the mix toward peak-load capacity without expanding overall capacity. It also demonstrates that in competitive markets and the load duration curve framework, marginal cost pricing minimizes the joint cost of producing energy and providing reserves, ensuring full recovery of investment and operating costs while maintaining zero economic profit.
Read the full article to explore the modeling approach and its implications for reserve planning and cost recovery in electricity markets.