Buchsbaum, Jesse F. <br/><br/>
Spillovers from Ancillary Services to Wholesale Power Markets:  Implications for Climate Policy / 
Jesse F. Buchsbaum, Catherine Hausman, Johanna L. Mathieu, Jing Peng. 
 - Cambridge, Mass.  National Bureau of Economic Research  2020. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w28027 .
 - Working Paper Series (National Bureau of Economic Research)  no. w28027. .
<br/><br/> October 2020. 
<br/><br/> In electricity markets, generators are rewarded both for providing energy and for enabling grid reliability. The two functions are compensated in separate markets: energy markets and ancillary services markets. We provide evidence of changes in the generation mix in the energy market that are driven by exogenous changes in an ancillary services market. We provide quasi-experimental evidence and a theoretical frame-work for understanding the mechanism, showing that it results from the multi-product nature of conventional power plants combined with discontinuities in costs. While research in economics typically focuses solely on the energy market, our results suggest that spillovers between markets are important as well. Furthermore, policy changes relating to grid operations, grid reliability, or climate change could have unintended effects. 
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