Are Gas Turbines ‘Bankable’ in Transitioning Energy-Only Markets?

From their inception, the energy-only electricity market design has been characterised by policymaker concerns of resource adequacy. Spot market price ceilings set too low and lacking a clear nexus with reliability criteria, capricious regulatory interference into otherwise legitimate scarcity pricing events, and a lack of demand-side participation are all thought to make the task of timely entry of requisite reserve plant intractable, and therefore ‘un-bankable’. The manifestly random nature of peaking plant spot market revenues are said to have been amplified by the ‘merit order effects’ associated following the entry of near zero marginal cost intermittent renewables en-masse. Large structural LP utility planning models may produce reliable forecasts of market averages, but struggle to replicate ex ante what will be an energy-only markets’ high-end volatility, ex post. The latter frequently underpins entry frictions facing peaking gas turbines. In this article, a stochastic block bootstrapping modelling framework is applied to Australia’s energy-only National Electricity Market setting – where the spot market price ceiling does have a tight nexus with the reliability criteria. The market is also characterised by looming coal plant retirements. While reliance on spot market revenues proves problematic for bankability purposes, when combined with cap derivatives from the forward markets, a tractable result emerges.