alt Hacker NewsI can assure you the spreadsheets at firms building plants factor in forecasts of revenue for the life of the plant into investment decisions. If they don’t pay past the first few years, that directly translates to lower forecast lifetime plant value for new plants.
I’m not a quant, and I’ve worked energy trading desks long enough to know there is a lot I don’t understand.. but I don’t see how separating auctions by plant age does anything other than move numbers around while keeping the total bill the same. Plants still need the same lifetime revenue to make investment decisions pencil out; whether you front-load payments or spread them evenly, the total in current value needs to be the same.
Even if the total cost is the same, if our payments better align with the behavior we want to incentivize, we may gain greater utility from the spending.
So it can matter how we distribute that revenue as to whether or not the business responds in the desired way, eg, actually investing in new capacity by linking payments directly to new capacity.