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February 12, 2013
Brattle Principal Metin Celebi Featured in Platts Article on the Effect of Coal Plant Retirements on Capacity Markets

Brattle principal Metin Celebi was featured in a February 12, 2013 Platts Megawatt Daily article that offers expert opinions on how the Midwest Independent Transmission System Operator’s (MISO) capacity market will respond to looming coal retirements.

The article examines how the current design of MISO’s capacity market leads to concerns that its design could keep prices low and lead to excessive retirements. As coal plants begin to retire, prices should increase as capacity is tightened, increasing revenue and allowing suppliers to retrofit their units. MISO’s current design, however, could lead to more price volatility than some of the other market designs that use a sloped demand curve. Specifically, because MISO’s design uses a vertical demand curve, the price of capacity falls close to zero when there is a small surplus in capacity.

In the article, some experts argue that market forces are equally, if not more, important than capacity market design. Dr. Celebi argues that regulated utilities are less reliant on energy and capacity market revenue than merchant generators, who account for just 9 GW of MISO’s coal capacity. Dr. Celebi anticipates the expected coal plant retirements will substantially increase capacity prices in the MISO region as the current capacity surplus disappears, possibly close to the cost of new entry by 2016 or 2017.