Question 1. Efficiency [10 marks] Imagine a market consisting of the following fleet of generators: Unit Type Capacity Marginal Cost Owner (MW) ($/MWh) Coal 400 $13 AlphaCo 2 Coal 250 $15 AlphaCo 3 Coal 200 $18 Centauri 4 Coal 300 $21 Centauri 5 CCGT 250 $24 PowerGen 6 CCGT 200 $26 PowerGen 7 CCGT 150 $28 Centauri 8 CCGT 400 $29 Centauri 9 SC 50 $38 AlphaCo 10 SC 80 $40 AlphaCo 11 SC 120 $50 AlphaCo 12 SC 50 $75 PowerGen a) If there is 2,200 MW of market demand, and the same market rules as Alberta's electricity market, which unit sets the marginal price in this hour? What are the profits for each unit in this hour? What are the profits each company in this hour? [3 points] b) If there is 2,200 MW of market demand that is completely inelastic, what is the total producer surplus? Consumer surplus (assume the maximum willingness to pay or VOLL is $1000/MWh) [2 points] c) What is the productive efficiency loss associated with Unit 7 being on outage and being unable to run? [2 points]d) Assume Unit 12 has a levelized cost of energy (LCOE) of $150/MWh. If there is a price cap of $1000/MWh in the above market, and Unit 12 has 150,000 MWh of production on average per year, how many MWh's of production are required to receive the price cap for Unit 12 to recover its LCOE and how many MWhs can earn its marginal cost of $75/MWh? What are the implications of this requirement? [3 points] (hint, unit 12 has the highest marginal cost)Question 3. Electricity Market Design [10 points] a) Why is it the case that while Alberta has a price cap of $999.99/MWh, there is not currently a concern for missing money/adequacy given it is an energy only market? [3 points] 2 b) What Government of Alberta Act cemented the idea of having a single price for electrical energy in Alberta? What is the rationale for imposing a universal price of electrical energy? [3 points] c) What is the tradeoff between having a policy objective of a single price for energy and a congestion free transmission grid, and overall economic efficiency? [2 points] d) Why was it so critical to "virtually divest" offer control in Alberta at the time of deregulation? [2 points] Question 4. Climate policy [10 marks] a) What is the purpose of an performance standard/offset in a carbon pricing system? [2 points] b) What is the economic efficiency impacts of having a carbon tax and subsidizing non-emitting resources at the same time? [2 points] c) Why is the social cost of carbon so hard to estimate? [2 points] d) What role do negative emission technologies have in getting the world to net- zero? [2 points] e) What does the recent prevalence of Corporate PPA's suggest about the current economic viability of renewable resources? [2 points]