University of California Energy Institute

PWP-020

Incentive Effects of Environmental Adders in Electric Power Auctions

James B. Bushnell (U.C. Energy Institute) and Shmuel S. Oren (U.C. Berkeley)

In PWP-020 a systematic examination is made of the options for incorporating environmental adders into auctions for non-utility generation. To date adders have been a popular tool of some regulators for the planning process, but have not been embraced as a tool for operations. Bushnell and Oren argue that any rational implementation of adders into a competitive acquisition process will have at least an indirect effect on the operations of the resulting electric system. If adders are to be employed, regulators must therefore be comfortable enough with them to use them explicitly in both the operation and selection of generation resources.