Missing Money Problem

A gas peaker that runs 200 hours per year costs $100 million to build but earns only about $2 million a year in energy market margin. It cannot cover its fixed costs. Yet the grid needs it for those 200 hours. If it retires, blackouts follow. This is the missing money problem: competitive energy markets may not provide enough revenue to keep essential reliability resources financially viable.

The problem arises because wholesale energy markets pay generators for energy produced, not for capacity available. A peaker that sits idle 97% of the year provides enormous reliability value, but the energy market only pays it during the few hours it runs. The zero-marginal-cost problem compounds this: as renewables depress energy prices for more hours of the year, the scarcity hours (and scarcity revenues) needed to cover peaker fixed costs grow fewer and more concentrated.

The math. A 100 MW peaker costing $100 million (about $1,000/kW) needs roughly $120/kW-year to cover its fixed costs. Running 200 hours at an average net margin of $100/MWh earns about $20/kW-year. The gap: roughly $100/kW-year in "missing money."

How do markets solve this?

Capacity markets. RTOs like PJM and ISO-NE run separate capacity markets that pay generators for committing to be available during peak periods, regardless of whether they actually run. PJM's capacity market has paid anywhere from about $10 to nearly $100/kW-year depending on the auction, covering much of the missing money gap. ERCOT, by contrast, relies on energy-only pricing with a high scarcity price cap ($5,000/MWh since 2022), betting that occasional price spikes will provide the investment signal. The two approaches represent fundamentally different philosophies about how to keep the lights on.

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