Economics Consider a highly stylized market where the supply at the moment consists only of coal- fired generation with private marginal cost of 20 EU R/MWh. On this market, the coal- fired generation can be replaced with a wind power during 2900 hours of the year (i.e. the capacity factor is ca. 33%). Building wind power has an overnight investment cost of 1000000 EUR/MW and 0 EU R/MWh marginal cost. The cost of capital is 5.0% and the life-time of the wind plant is 20 years. No need to consider any other costs. Report the answer with two decimal digits (e.g. 12.34). To ensure that you get the exact answer, do the rounding only at the last stage of your calculation. Subquestions a-c) follow directly from the lecture materials, d) needs some more thought. Each subquestion gives 3 points. a) In a competitive market, what would be the optimal bid of a coal-fired plant? b) Given the parameters above, what would be the levelized cost of capital for a wind plant? c) Assume that the marginal damages from emissions are flat at 60 t/COZ. The coal production causes emissions at a rate of 0.8 tCOZ per 1 MWh of electricity generated. If an optimal Pigouvian tax is implemented, what would be new marginal cost of the coal plant? d) Assume now that the only feasible policy measure for you to reduce coal use is to subsidize wind R&D, i.e. forget the C02 pricing. Assume that out of the current 10 000 TWh of coal-fired generation in the world per year, wind can technically replace 4 000 TWh per year. How many billion of EUR would you be willing to invest to R&D at most to reduce the levelized capital cost of wind power below the marginal cost of coal production? The assumption is that firms will then replace coal with wind as it's cheaper (Hint: Wind replaces coal for several years -:> It's going to be a lot.) Remember: The social cost of carbon is assumed to be 60 t/COZ, the interest rate is 5.0%, and the wind plants will operate for 20 years (ignore effects beyond that)