The Effect of Changing Marginal-Cost to Physical-Order Dispatch in the Power Sector
This study explores the 2021 Mexican reform to change electric power dispatch from a marginal-cost-based to a command and control physical system prioritizing power generation from the state power company.
The analysis of local environmental policies is essential when evaluating the consistency of national public policies vis-à-vis the compliance of global agreements to reduce climate change. This study explores one of these policies; the 2021 Mexican reform to change electric power dispatch from a marginal-cost-based to a command and control physical system prioritizing power generation from the state power company. The new law forces the dispatch of the state company power facilities before private power producers. We use the GENeSYS-MOD techno-economic model to determine the reform’s effect on the power system’s generation mix, cost structure, and anthropogenic emissions. For this, we optimize the model under three distinct scenarios; a business-as-usual scenario with no changes to the merit order, a model with the new physical order dispatch, and an additional case where in addition to the shift to the physical dispatch, we reduce the price of fuel oil below natural gas prices to simulate the current behavior of the power company. It is relevant to note that we optimize the energy system without any assumption regarding renewable targets or climate goals because of political uncertainty and the need of pinpoint the effect of the merit order change while avoiding possible variations in the state-space arising from other constraints. Our results show that by 2050, the new dispatch rule increases the market power of the state company to 99% of total generation and decreases the share of renewable technologies in the generation mix from 72%to 51%. Additionally, cumulative power sector emissions increase by 563 Mega-tons of CO2, which with the current cost of carbon in the European Emissions Trading System translates to around 36 billion Euros.
On the Issues — Nov 22, 2023
On the Issues: Offshore Wind Boost, Holiday Air Travel, and More
A biweekly newsletter connecting global current events, pressing climate and energy policy news, and economics research from RFF scholars. This week: Offshore wind boost, holiday air travel, and more.
Resources Radio — Nov 14, 2023
Not a Shore Thing: Challenges in US Offshore Wind Development, with Ben Storrow
Ben Storrow discusses the challenges for offshore wind project development in recent years, how policymakers can address these challenges, and the future of the offshore wind industry.
Resources Radio — Sep 12, 2023
European Perspectives on the Inflation Reduction Act, with Milan Elkerbout
Milan Elkerbout discusses how the European Union has reacted to the Inflation Reduction Act, climate and industrial policies that the European Union has proposed over the past year, and trends in global trade and industrial policy.
Common Resources — Jun 19, 2023
Power-Sector Pollution Targeted by New Regulations from the US Environmental Protection Agency
Three new regulations have been announced by the US Environmental Protection Agency early this year to help achieve the policy goals of the Clean Air Act. The regulations target harmful air pollutants and greenhouse gas emissions.