Utilizing System Dynamics Modeling to Examine Impact of Deregulation on Generation Capacity Growth

Widespread deregulation of the U.S. wholesale power industry in the late 1990s was followed in many regions by substantial overbuilding of capacity. This behavior calls in to question the longer term stability of the deregulated industry. A dynamic model structure of power-producing regions, suitable for longer term analysis of capacity investment and market stability, was created and validated against 20 years of data for two regions. Monte Carlo simulations suggest that for a realistic range of assumptions, the deregulated wholesale power markets are substantially more cyclical than they would have been under a regulated monopoly regime. The models can be improved in several areas, most notably further simplification, analysis of impacts of market structure and design, and addition of transmission constraints among regions.