The magnitude of the impact of a shift from coal to gas under a Carbon Price

Liam Wagner, Lynette Molyneaux and John Foster ()

No 9-2013, Energy Economics and Management Group Working Papers from School of Economics, University of Queensland, Australia

Abstract: We seek to evaluate the extent of the pass through of increased fuel and carbon costs to wholesale prices with a shift of generation from coal-fired to gas-fired plants. Modelling of Australia's National Electricity Market in 2035 is undertaken using Australian Energy Market Operator assumptions for fuel costs, capital costs and demand forecasts. An electricity market simulation package (PLEXOS), which uses deterministic linear programming techniques and transmission and generating plant data, is used to optimise the power system and determine the least cost dispatch of generating resources to meet a given demand. We find that wholesale market prices increase due to the full pass through of the increased costs of gas over coal as an input fuel and the Carbon Price. In addition, we find that wholesale prices increase by more than the pass through of fuel and carbon costs because of the fact that generators can charge infra-marginal rents and engage in strategic behaviour to maximize their profits

Keywords: Electricity; markets; infra-marginal rent (search for similar items in EconPapers)
JEL-codes: D40 L94 Q48 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-ene, nep-reg and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: The magnitude of the impact of a shift from coal to gas under a Carbon Price (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uqeemg:9-2013

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