The Alberta Electricity market has installed capacity of about 6300 MW of coal, 6350 MW of combined cycle and cogeneration natural gas, about 1000 MW of simple cycle natural gas, 1465 MW of wind power, and about 850 MW of hydro, and some biomass. Assume coal power plants generate 1 tonne of carbon per MWh while natural gas CC and Cogen plants emit 0.42 tonnes per MWh and NG SC emits 0.575 tonnes per MWH. New NG CC plants are the benchmark and emit 0.37 tonnes per MWh.

Assume coal can bid at $ 25/MWh, NG CC and Cogen can bid at $ 35/MWh, NG SC at $ 55/MWH. Hydro and wind have to bid at $ 0/MWH. Assume there is a fixed hourly demand of 8500 MW during off-peak and 11,000 MW during peak.

1. What is the equilibrium system marginal price during off-peak and peak without any carbon price (1) when wind is generating at full capacity and (2) when wind is not producing at all? What are the MW sold and the profits for each generation source? Illustrate in a supply and demand diagram. (6)
2. How do your answers to b.) change when there is a carbon price of $ 30/tonne and all emissions above 0.37 tonnes need to be paid for? (6)
3. Now assume coal is phased out, there is a carbon price of $ 50 and all emissions above 0.37 tonnes per MWh need to be paid for. Assume coal capacity is half replaced with wind and half replaced with NG CC and Co-generation. What is the equilibrium system marginal price during off-peak and peak (1) when wind is generating at full capacity and (2) when wind is not producing at all? What are the MW sold and the profits for each generation source? (6)
4. How would the situation change if all of the carbon emissions would need to be charged for at $ 50/tonne and not just the emissions in excess of 0.37 tonnes of carbon per MWh? What would be the system marginal price, the profits and MW sold by each generation source? (6)
5. What are some deficiencies with the current Alberta electricity market system and how could these be addressed? (6)