ELEC9714 Assignment 2 - t2 2023 page 1

Electricity Industry Planning + Economics
School of Electrical Engineering and Telecommunications
University of NSW

Assignment 2 v2 Yallourn W capacity is 1500MW (see updated table 1), some additional notes on
the ambiguity in dispatch when there are 2 generators with the same operating costs, corrected probability
distribution in j).

This assignment will be distributed to you in week 7 via the course Moodle. It is due by midnight Saturday of week 9.
The assignment must be submitted via Moodle as a single pdf file. Aim to make your assignment look like a
professional consultancy report and paste in Excel plots and calculation tables.

The assignment must be submitted individually and must be your own work. The UNSW policy on student plagiarism
can be found on the www.unsw.edu.au website. Note also the information on plagiarism detailed in the elec9714
Course Introduction which is available on the course Moodle. Note that UNSW uses automated plagiarism software.
Because of this, all text and tables need to be ‘searchable’ within the pdf - ie. not pasted in as graphics. Again, the
only acceptable pasted graphics are the plots, not any tables and not any of your discussion. You are also required to
upload your Excel Spreadsheet or similar working file. This will not be marked but may be checked if there are
concerns about assignment similarities across two or more students.

The assignment will be marked out of 20. There are 10 parts each worth 2 marks. For each part, 20% of the allocated
marks is for showing how you undertook the analysis, 60% of the mark is for your answers, and 20% of the mark for
your discussion of the findings. If you don’t discuss your results then you can only get maximum 80% of the assigned
mark, assuming you explained your method and got the right answer. Finally, no spurious precision please. You are
modelling a competitive wholesale electricity market using heroic assumptions.

The two assignments over the course are in total worth 25% of your final assessment. This assignment therefore
contributes 12.5% of your final mark. Note that late submission without good reason will see you lose 3 marks per
day it is late. I suggest you contact me prior to the submission date if you expect to be late in order to discuss
arrangements.

You are strongly encouraged to use Excel or a similar spreadsheet package to undertake this assignment – indeed,
you will need to use some form of data analysis software. You will also want to spend the time to work out how to
automate the calculations as much as possible. There are lots of parts to this assignment that extend the initial
analysis - make it easy to change key parameters rather than hard-coding it in. A little automation will make your life
much easier, and it is very valuable to have good Excel skills - it is the one techno-economic energy modelling tool
that you can guarantee will be available to all energy system engineers in whatever role they have.

(2 marks per part for 20 marks total)
You are a market analyst working for a large international generation company considering investing into a
wholesale spot market that has a mix of old brown coal plant, an old gas thermal plant, more recent OCGT, old but
still highly reliable hydro, considerable wind generation and some utility PV generation. This generation is mostly
owned by four large generation participants as outlined in Table 1, which also provides annual capital and
incremental variable costs for each plant. You may note a few similarities to the Victorian region of the NEM.

The plants are of different ages and some have been refinanced. The fixed O&M costs of some of the old brown coal
plants are also particularly high. Hence the different annual capital costs that don’t necessarily match the ‘new build’
capital costs of the different generation technologies. Each technology other than the wind and PV generation can
be assumed to be entirely flexible (ie. it can be instantaneously started and shut down with no cost, and run at any
operating level between 0MW and its rated output. It is also assumed to have constant incremental variable cost (ie.
short run marginal cost - SRMC) over its entire operating range.

Unfortunately the hydro plant is very energy constrained (ie. only able to operate at low capacity factors of around
10-20% - hence it is offered into the market at $200/MWh. It therefore can be expected to run only occasionally but
be highly profitable when it does so given that it has zero operating costs. This is a problematic approach but
ELEC9714 Assignment 2 - t2 2023 page 2
properly accounting for energy constrained hydro will make the assignment far too complex, and we do want our
gas generators to make some money occasionally.

Load is simply modelled as 4000MW during the day (7am-7pm) (demand is being impacted by 3GW of installed
rooftop PV) and 8000MW overnight (7pm-7am) – yes, a major assumption. There are a number of retailers but for
simplicity you don’t need to consider them. However, there is one major industrial load, an aluminium smelter,
which has fixed costs associated with debt servicing as well as fixed operating costs of $175,200/MW/year, and a
short run marginal benefit (operating benefit) of $130/MWh. Note that its demand of 600MW is included in the total
4000MW and 8000MW during the day and night, and the plant operates at 100%CF over the year – ie. it can’t be
turned up and down over the day.

The total 4000MW of wind generation can be approximately categorized as operating at 60% capacity factor (CF)
(2400MW) for 50% of the time, and 20% CF (800MW) for the other 50% of the time – its overall CF, therefore, is
40%. You can assume that all wind farms have completely correlated outputs – they all generate at either 60% or
20% CF at exactly the same time. Also, wind generation is entirely uncorrelated with day or night time periods.

The 1000MW of utility PV generation can be modelled as a flat 600MW output during daylight hours (30% CF overall)
– yes, another big assumption. All of the utility PV and wind are owned by a variety of smaller market participants.

All generation and the system load are on a single network bus. This electricity industry is dispatched through an
ongoing one-hour spot market. You can assume that no participants are attempting to exercise market power – ie.
they offer their entire generation at their operating cost. The market price is set by the marginal (partially
dispatched) generator. Note that if demand should be exactly the same as the maximum capacity of the marginal
generator, the price is actually set at the operating cost of the next generator in the supply curve. Strictly speaking
this is how market dispatch is solved – they calculate the additional cost of supplying one more MWh of electricity
and this would require that the next generator actually start operating and hence setting the price.


Table 1: Generating Unit and Company Data for Question 1 (see new max capacity for Yallourn W)

Market participant unit type
Annual fixed (capital
+ O&M) costs for
owners $/MW/yr
maximum total
output MW
incremental variable cost /
SRMC $/MWh
EAGen Gas (thermal) 90,000 800 120
Yal lourn W 400,000 1500 30
Snowy hydro 70,000 2000
0 (but offered at $200/MWh
given energy constra ined)
VariousWind wind 180,000 4000 0
VariousPV pv 120,000 1000 0
AGL gas 90,000 700 160
Loy Yang A 350,000 2000 20
Al inta/Origin Loy Yang B 350,000 1000 20
Gas 90000 800 160


(a) For each of the two possible wind generation CF states and two time of day states (four possible states in
total – daytime high wind, daytime low wind, nighttime high wind, nighttime low wind), draw the
generation offer curves on the same plot, and solve the spot market price for each case. Assume that all
generation participants are preference revealing (offer into the market at their operating costs) and note
ELEC9714 Assignment 2 - t2 2023 page 3
that the industrial load doesn’t bid to buy in the market but just operates at 100% CF while paying the spot
price. Given the probability distribution of wind generation CFs and day/night time demand (and
associated PV generation) – that is the probability associated with each state (a 25% likelihood for each
state), calculate the time-weighted average market price. Put your answers in tables and discuss your
findings.

(b) For each of the two possible wind generation CF and day/night market states, what is the total generation
output (MW) of each generation unit for each generation company, the operating profit ($/hr) of each
plant and hence company ($k/hour), as well as the operating profit of the Aluminum smelter. As noted
above, the wind is not correlated with day/night, hence four possible market states, each with 25%
probability. Put all answers in tables and discuss your findings. Note that there may be some ambiguity in
dispatch when there are two generating units owned by different participants with the same operating
cost setting the price (Loyang A and B at $20/MWh and the gas peakers at $160/MWh) as the split across
the two units is not defined.

Now calculate the annual operating profit ($m/year) of each of the generation companies and the
industrial customer given the wind CF and day/night probability distributions. Put all answers in tables and
discuss your findings. Also, calculate the average (ie. weighted) renewables penetration of this electricity
industry (%) and discuss.

(c) Now calculate the total (net) profit ($m/year) of each of the generation companies and the smelter given
the wind CF probability distribution ($m/year) after covering the fixed (capital and fixed O&M) cost
repayments that they are required to make. Also calculate these annual profits as a % of total fixed costs
for each market participant (a measure of returns on investment). Please put your answers in a table.
Discuss your findings.

(d) Your international generation company is considering investing in a wind farm in this market. You are
aware that there are other international companies that are also contemplating a similar investment and
it seems entirely possible that 2000MW of new wind will enter the market over the next couple of years.
This wind generation will be almost entirely correlated with the existing wind. Given capital costs of
$1700/kW for these wind projects, with financing available at 4% over 20 years, and fixed O&M costs of
$20/kW/year and zero operating costs, estimate what price ($/MWh) you could sell a 20 year PPA (a
variable volume CFD around the future wholesale market price) for. Do you consider it likely a retailer or
the industrial customer might be interested to purchase this PPA given current market prices?

(e) There is of course the question of all the other wind generation projects, and whether they will proceed.
For the case where 2000MW of new wind generation does get built by you and other developers (not any
of the existing companies), without any PPAs (ie. all the developers take full exposure to the market price),
estimate the total profit or loss made by the 2000MW of new wind ($m/year and % profit/fixed costs). You
will of course need to recalculate spot market prices and generator dispatch for each of the four combined
wind CF and day/night states (an additional 1200MW of wind for 50% of the time and 400MW of wind for
the other 50% of the time). Is there a commercial case for building this wind? Also estimate the impact on
overall profitability of all the other generator companies and the smelter. Be sure to put your results in
tables and discuss your findings. In particular, what does it say about the value of the PPA to whoever
bought it. Also, what would be the average renewable penetration (% energy) in this case?

(f) You are also considering opportunities to build a utility PV plant. Again, you are aware that there are other
international companies that are also contemplating a similar investment and it seems entirely possible
that 2000MW of new PV will enter the market over the next couple of years. Its performance can be
assumed to be the same as existing PV (ie. 1200MW of generation during daylight hours). Given capital
costs of $1050/kW for these wind projects, with financing available at 4% over 20 years, and fixed O&M
costs of $10/kW/year and no operating costs, estimate what price ($/MWh) you could sell a 20 year PPA (a
variable volume CFD around the future wholesale market price) for. Do you consider it likely a retailer or
the industrial customer might be interested to purchase this PPA given current market prices? Also, what
would be the renewable penetration (%energy) in this case?

(g) There is of course the question of all the other PV generation projects, and whether they will proceed. For
the case where 2000MW of new PV generation does get built by you and other developers (not any of the
ELEC9714 Assignment 2 - t2 2023 page 4
existing companies), without any PPAs (ie. all the developers take full exposure to the market price),
estimate the total profit or loss made by the 2000MW of new PV ($m/year and % profit/fixed costs).
Assume that the wind generation in part e) was not built. You will of course need to recalculate spot
market prices and generator dispatch for each of the four combined wind CF and day/night scenarios (an
additional 1200MW of PV during daylight hours). Is there a commercial case for building this PV? Also
estimate the impact on overall profitability of all the other generator companies, the retailers and the
industrial customer. Be sure to put your results in tables and discuss your findings. In particular, what does
it say about the value of the PPA to whoever bought it?

(h) The 1500MW Yallourn W plant was built in the 1970s and is becoming increasingly unreliable and
expensive to maintain. Ignore, for a moment, the potential new wind or utility PV generation investment.
For the case where none of the proposed wind or solar was built, calculate the expected total profit of
each of the generation companies and the industrial customer, including the fixed capital and O&M cost
repayments they are required to make, should this plant either suffer a catastrophic failure at the start of
the year, or be closed by the owner. Again, you will need to recalculate spot market prices and generator
dispatch for each of the two wind and daytime/nighttime scenarios. Discuss your findings.


(i) Consider the case where 3GW of new wind and 1GW of new solar is built as Yallourn exits the market. In
particular, calculate the expected annual profit of the wind and PV developers from such an investment, as
well as the expected annual profit of each of the other generation companies and the smelter. You should
of course include the capital cost repayments that you and the other market participants are required to
make. Would such wind investment make commercial sense to the wind and solar developers? What
would be the renewable penetration in this case?


(j) The best estimate is that there is a 75% probability of Yallourn W exiting the market over the next few
years while there are considerable doubts about future renewables investment. The industrial customer is
rather concerned about the potential departure of this generator, which may be followed by other old
generators failing too over the coming decade. Given this estimated 75% likelihood of this over the few
years, calculate the expected average future wholesale price (no need for any further Excel modelling to
do this given that the smelter has to run 24/7). Would this industrial customer be potentially interested to
buy a 600MW fixed volume 24/7 CFD at this ‘expected’ average future spot price to avoid the risk that
they will run at a loss should Yallourn W leave?

Another generation developer is contemplating building a CCGT plant. They estimate that they could build
a 600MW CCGT for $131.4k/MW/year fixed costs and $90/MWh operating cost. Would they potentially be
interested to sell a CFD to the industrial customer that the customer would actually be prepared to buy?
Keep in mind that the renewables investment might come, and hence drop prices. Also, there is some
chance that a carbon price will be imposed on the electricity sector over the coming 20 years, although the
CCGT plant would have significantly lower emissions intensity than the other gas generation
(0.4tCO2/MWh versus around 0.5tCO2/MWh for the thermal plant and 0.6tCO2/MWh for the OCGT gas
plants). Discuss your findings.

Bonus: Could you envisage the smelter actually buying a PPA from a renewables developer to get the
renewables investment, rather than a CFD with the CCGT plant. Think about the benefit for them of
bringing say 1500MW of new wind generation into the market.