Company A is evaluating an offshore investment in renewable energy to pay for its CO2-e emissions and sell the remainder (RECs) to the Australian market. The questions in this exam will present the theories and characteristics for this investment in RECs.

Assuming that Company A will generate 3M RECs in the offshore operation. Considering that the company's own consumption is 300,000 RECs/a will be used for the operation in Australia, 2,7MRECs/a will remain to be sold in the Australian market.

Question 4 - Pricing

a - Use your knowledge of marginal revenue and marginal costs to estimate a price per unit produced, and explain if you are making an economic profit/loss using the ATC and marginal revenue curves). Draw an ATC curve with 2020 and 2040 prices, all else held same. Use your words to describe the graph.

b- Assuming this company participates in a duopolio in the generation and sale of RECs, would you advise it to sign energy hedge agreements, or not? Use Nash's theory to explain your answer and highlight the advantages and disadvantages of having an energy hedge agreement.