Retirement Decisions for Natural Gas and Coal Fired Plants in ERCOT

The transition towards renewable energy is reshaping electricity markets, leading to increased pressure on fossil fuel-based generators, particularly natural gas and coal-fired plants, to retire. However, these generators remain essential for backing up intermittent renewable energy. Their reliability is critical for maintaining resource adequacy and ensuring grid stability during periods of low renewable output or extreme demand. This paper examines the structural factors influencing the retirement decisions of these generators in the Electric Reliability Council of Texas (ERCOT) market. Using a dynamic discrete choice model, we estimate structural parameters governing plant operation and retirement decisions, accounting for the endogeneity of fuel prices and operating costs. The results show that as wind and solar capacity grows, fossil fuel generators—particularly coal plants—are increasingly driven toward early retirement due to age and reduced operating profitability. We also explore how increased renewable energy penetration impacts retirement decisions in our counterfactual analysis. These findings provide insights into the future of resource adequacy and policy interventions needed to manage the energy transition in ERCOT. Future research will consider the role of carbon pricing as a factor in accelerating generator retirements.

Dynamics of Renewables in Electricity Markets

This paper examines the analytical dynamics of renewables in electricity markets with a view towards ERCOT. Previous literature analyzing renewable entry has focused on its justification, proposed pricing mechanisms, and empirical case studies of its impact on generation mix, prices, and operating reserves. This paper works alongside this literature to understand the analytical derivations of renewable entry effects and the dynamics of subsidies, tax, and the generation mix. Lastly, we discuss trade-offs of various pricing and support mechanisms for addressing negative prices and transmission/intermittency costs as it relates to ERCOT for future work.