  This paper considers the reliability problem in energy-only markets.
Following widespread blackouts in 2011, Texas introduced a reliability price
incentive to attract two GW of net additional natural gas-generating capacity.
The incentive is unusual because energy buyers pay the incentive directly to
producers in a real-time spot market. The program has created $13 billion in
direct payments to generators annually since 2015 and is now being implemented
or considered in several major energy markets in the US and abroad. We assess
the incentive's impact on the Texas market from three perspectives: First, we
derive the incentive's equilibrium effect on the electricity price in a
monopolistic market from first principles using a standard partial equilibrium
economic model. We then empirically test whether the incentive encouraged net
entry into the market or the generating applicant pool, controlling for market
and climatic conditions using monthly capacity data. Finally, we look for
direct evidence of an incentive response among active traders using real-time
market trading data. The three approaches suggest buyers and producers cancel
out the incentive, and the price-only program does not encourage new generation
capacity to enter the market.
