Geothermal Power Brokering Using Escalator Pricing

Abstract

The paper tells how to make a market for geothermal power generation sales brokered into geographically disperse wholesale electricity markets. An escalator price design provides incentives for buyer and seller. The mathematics of price determination minimizes Contract-For-Differences’ and Final settlement payments. Application of a least absolute error selection criterion and a clustering algorithm to the difference between month-by-month forecast prices from Platts and magnet prices, described in the paper, forms the basis for escalator price determination. The escalator price moves up over the contract term. An initially discounted price attracts buyers to the renewable resource perceived to be not as dependable as conventional capacity. The price escalates, relative to the prevailing wholesale market price, to include a premium that allows the seller to break even or earn margin over the contract term. Success of the marketmaking exercise depends on sponsorship of green tags and award or distribution among market participants that varies over contract term. The paper concludes that though market power and politics impede success for geothermal power brokering, nature, escalator prices, and green tags can make geothermal profitable and viable as a dedicated 7x24 base load resource.