Lessons learned from the failed risk management for planning natural gas fired power plants

This paper shows that natural gas fired power plants have been performing very poorly economically for the last few years in North America. It argues that many of these plants may remain unprofitable for years to come. It tries to draw lessons learned from the experience and one such lesson is the failed risk management in planning the additions of the gas fired power plants, including poor modeling and inappropriate parameter estimation. The poor modeling is from the use of the "Partial Equilibrium'' models that do not take into consideration the overall effect of the decisions of multiple firms across the markets, while the inappropriate parameter estimation is basically the poor use of historical data. The paper suggests the use of "Complete Equilibrium" models to overcome the problems.