Measuring the Benefits of Greater Spatial Granularity in Short-Term Pricing in Wholesale Electricity Markets

Abstract

Hourly generation unit-level output levels, detailed information on the technological characteristics of generation units, and daily delivered natural gas prices to all generation units for the California wholesale electricity market before and after the implementation of locational marginal pricing are used to measure the impact of introducing greater spatial granularity in short-term energy pricing. The average hourly number of generation unit starts increases, but both the total hourly energy consumed and total hourly operating costs for all natural gas-fired generation units fall by more than 2 percent after the implementation of locational marginal pricing.