@article{biggar2024crises,
title={Crises in Texas and Australia: Failures of energy-only markets or unforeseen consequences of price caps?},
url={https://www.sciencedirect.com/science/article/pii/S0140988324005188},
urldate={2026-08-10},
DOI={10.1016/j.eneco.2024.107810},
journal={Energy Economics},
volume={137},
ISSN={0140-9883},
publisher={Elsevier BV},
author={Biggar, Darryl R. and Hesamzadeh, Mohammad Reza},
year={2024},
month={09},
pages={107810},
abstract={"The Australian National Electricity Market (NEM) and the Texas wholesale electricity market (ERCOT) are two of the most prominent examples of energy-only wholesale electricity markets in the world. In early 2021 and mid 2022 these markets suffered from unprecedented crises, prompting some commentators to question the energy-only market design. Both markets are now considering implementing a form of capacity mechanism. Are these crises evidence of a fundamental flaw in the energy-only market design, or something else? We argue that, although the crises were very different in form, both crises arose in part from the effect of price caps in the wholesale market. We set out a model of the optimal mix of generation technologies in a framework in which generators can invest to protect against extreme weather events. We show that a price cap (below VoLL) reduces incentives for investment in hardening generation. Rather than further lowering the price caps --- as was done in Texas --- we propose a range of reforms to strengthen and enhance the confidence in the wholesale market.},
annote={Quote: "But the extreme prices had a much more dramatic impact on those industrial customers and the few residential customers who were on dynamic pricing plans, or wholesale-pass-through plans."  Quote: "Particularly attention was focused on providers of 'indexed' retail contracts, the most prominent of which was Griddy. These retail plans vary the retail price according to variation in the wholesale price. As a result of the crisis, many customers faced substantially higher monthly electricity bills --- some as high as USD20,000. Griddy was forced to file for bankruptcy."  Quote: "We have also proposed improving the quality of retail contracts so as to make customers responsive to wholesale spot prices at the margin, while insulating them from spot price variations for their 'baseline' consumption."},
}