A Texas Capacity Market: The Push for Subsidies

Texas boasts one of the greatest energy markets in the world. Yet, despite years of success, many policymakers have begun to question whether Texas’ energy-only market can continue to deliver adequate generation in the years ahead. Instead of looking at current regulations that distort the market, recent debate has centered on installing a top-down, system-wide capacity market that subsidizes the operational costs of energy production in the hopes that energy companies will invest in new capacity. Past experience, however, shows that capacity markets, at best, have a threadbare track record at boosting energy investment. Its cumbersome regulations cannot accurately recreate the incentives naturally found in the market, resulting in a multi-billion dollar redistribution scheme whose greatest success will be at inflating electricity rates all the while shifting the risks of bad business decisions onto consumers.

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