ENGY7117 Energy Markets, Law and Policy, Semester 2 2024

Individual Written Assessment - Short Answer Responses

Weighting: 40% of your final grade.

Assessment Criteria: See supporting assessment Rubric.

Due Date: One (1) written document and one (1) supporting excel spreadsheet to be submitted by 11 November 2024, 4pm (Brisbane time) (Spreadsheet via Blackboard link, Written document via Turnitin)

Notes:

There is a total of 40 marks allocated to this assessment item.

These short-answer responses are an individual assessment. You will be graded on your own efforts. You are not permitted to work on this assessment item in groups.

The answers that you prepare should be all your own work.

You may discuss issues with the teaching staff via the Ed Discussion board.

You are expected to conduct some independent research to complete these answers.

The use of Artificial Intelligence is not permitted for this assessment item. In Accordance with UQ’s statement onAcademic Integrity and Student Conduct: “At UQ, the use of AI outputs without attribution, and contrary to any direction by teaching staff, is a form. of plagiarism and constitutes academic misconduct.”

The gross-pool electricity market model that was used in the intensive week market simulation game will be required for this assignment. You can download the model at Blackboard > ENGY7117 > Learning Resources > Guided Activity - Electricity Market Simulation Game PART 2.

You do not need to build new logic into the spreadsheet model to answer the questions in this assessment, but you will need to recalibrate inputs, repurpose some of the existing power generators and do some separate calculations to interpret the outputs.

FORMAT OF DELIVERABLE:

The first page will be a cover page with your name, student number and course code and declaration that this work is your own.

You may place your sources/references at the end of each question part OR as footnotes on each page OR as endnotes to the document. You may use any academic reference style, but please be consistent.

There is no specified length for your responses but they are SHORT answers. See the illustrative example to gauge the level of detail and length of your answers. Keep your answers focused to answer the specific question.

The spreadsheet that you submit should be saved with all of your calibrated values to reflect your answer to Question 1b.

What does a short answer look like?

Here is an example of what a short answer looks like to a hypothetical question to give you some guidance for the form. of your answers. You are not compelled to follow this format, but it contains the requisite elements such as explanations, referencing, presentation format and soon. The references, numbers and logic is not real – this short answer is only to show an illustrative format.

Question (eg): Display the current prices for European and USA gas prices in a table and explain one key factor which may explain any differences. List sources and include any assumptions or explanations of your data. Answer:

Assumptions: Prices are presented for natural gas on spot markets and yearly forward markets. The USA gas price is for gas delivered at Henry Hub. The EUR gas price is for gas delivered at TTF (Title Transfer Facility). Prices exclude transport and taxes.

Conversions have been applied to present in common denomination, using 1 MWh = 3.412 MMBtU and exchange rate of 1.05 EUR/USD [3].

Explanation: On a like for like basis, natural gas in Europe sits at a prices far higher than the US at present and for a three year horizon based on forward prices. Gas supplies to Europe have been reduced with Russian pipelines curtailed owing to the Ukraine conflict [5], while the USA continues to see strong production levels of natural gas [6]. Being a fungible commodity, gas price differentials are explained by the expense of transport between the two regions and constraints on LNG shipments between the two trading zones [4], consistent with the Supply-Demand Framework.

[1] European Gas Exchangewww.egefake.comaccessed 1-Oct-2024

[2] Henry Gas Exchangewww.hgefake.comaccessed 1-Oct-2024

[3] Foreign Currency Exchangewww.fcefake.comaccessed 29-Sep-2024

[4] Poten & Partners, LNG Market Outlook, October 2022,https://www.poten.com/wp-content/uploads/2022/11/October-2022-LNGMO-European-LNG-Imports-Hit-Infrastructure- Constraints.pdf

[5] European Gas Today, “Putin Turns off the Taps”, January 2024,www.egtfake.com

[6] USA Gas Report, “Gas is Fracking Awesome”, June 2024,www.ugrfake.com

Question 1 (20 Marks)

This question will make reference to the simulation model for the gross pool FEM which was used in class demonstrations. You will also make comparison to Australia’s NEM which will require some independent research.

a.    You are informed that the Short Run Marginal Cost for Kerosene generators in the FEM is

$390/MWh and renewable generators have an SRMC of $0/MWh apart from dammed hydro which has a cost of water of $30/MWh. Fixed costs are all consistent with the version of the FEM model that you download.

Determine the typical Short Run Marginal Costs (in currentday AUD/MWh) for each of the four other power stations technologies if they were situated in the NEM today and present your findings in a table. Provide your sources and any assumptions.

You may optionally use some market intelligence which has found that Loy Yang power station has a contract with a local supplier to receive dried brown coal at $30/tonne (including royalties) with calorific value of 17 GJ/tonne.

(10 Marks)

b.    Use the following assumptions for your model:

-      Assume a :medium” demand day scenario, and

-      Assume generators offer with SRMC bidding, and

-      Assume generators all respect minimum load limitations, and

-      Assume all power stations are all online and variable-renewable power stations have “medium” levels of renewable resources.

Establish the pool price outcomes across the 24-hours of a day in the FEM, present your results in a suitably formatted chart and state the time-weighted average daily electricity price.

Prepare a table which displays the resultant capacity factor (in %) for each of the 11 generators.

(10 Marks) As a note, your performance on (b) is not judged on the numbers you derive in (a). That is, you can still get full marks on part (b) even if you have an error from conclusions in (a).

Save your spreadsheet in its final form, as you will load that spreadsheet as part of your submission to Blackboard for this assessment. The answers should all be contained in your written response – the spreadsheet is for markers to verify how you got to your answers if needed.

Question 2 (20 Marks)

For this scenario, the government is concerned with guiding the electricity system to lower carbon emissions. All of the power station costs and bidding strategies remain the same as your Question 1 responses so you should adapt your model from Q1 to answer this question.

For the coming year, forecasters have predicted that:

●    grid customers are likely to have a demand level at the “medium demand” scenario for every single day; and

●    all power stations will remain reliable and online; and

●    all power stations will offer into the market with SRMC bidding; and

●    the variable renewable generators will have available resources at the “low” scenario.

Several years ago, the owners of the brown coal generator G1 announced its closure date, and now there is only one year remaining of operations until it is shutdown and decommissioned. Their business holds no derivative contracts.

Ahead of schedule, the government has just completed the construction of a 550 MW nuclear small  modular reactor located beside the brown coal generator G1 but the grid transmission network only allows for one of the power stations to connect.

Note that even if the generator G1 closes early, the company still incurs its fixed costs (because they are paying back the costs of purchasing the power station overtime and the financiers still demand their loans to be repaid).

The small modular reactor has fixed costs of $50,000/hour and avariable cost of zero and a carbon intensity of zero and min load of 200 MW. The government plans to offer the SMR into the grid using SRMC bidding.

a.    If the brown coal generator G1 continues to generate as planned, what is the projected time- weighted average wholesale electricity spot price for the coming year?

(2 marks)

b.    If the brown coal generator G1 continues to generate as planned, what are the projected annual total carbon emissions from the grid in tonnes of CO2 for the coming year?

(2 marks)

c.    Suggest a fair compensation package for the government to offer the brown coal generator G1 to close down immediately. Explain your assumptions and methodology and calculations.

(4 marks)

d.    What will be the projected time weighted average electricity price for the coming year if the brown coal station G1 is closed down and the SMR operates instead?

(2 marks)

e.    Under the scenario that the brown coal station G1 is closed and the SMR operates instead, is the market price projected to move by a little,a moderate amount or a lot? Provide a paragraph to explain the sensitivity of the market price to the change in generator.

(2. marks)

f.     Under the scenario that the brown coal station G1 is closed and the SMR operates instead, what are the projected total annual carbon emissions from the grid in tonnes of CO2 for the coming  year?

(1 marks)

g.    The government would like to reduce net carbon emissions from the electricity grid down to 5  million tonnes for the coming year.  The two strategies that the government is considering are:

1.    Compensate generator G1 to close, operate the SMR, and buy reputable carbon offset certificates to reduce net grid emissions;

2.    Do not intervene with generator G1 and do not operate the SMR until the scheduled start in one year and buy reputable carbon offsets or certificates to reduce net grid emissions.

Provide a recommendation for the preferred strategy for the government taking into account direct and indirect costs to the government and electricity consumers. Back up your recommendation with an explanation of your methodology, assumptions and calculations.

(4 marks)

h.   The commissioning of a new SMR could conceivably encounter teething problems, specifically a one month unexpected outage in its first year of operations. Explain how this scenario affects your conclusions from part (g) with regard to the legs of the energy trilemma along with any assumptions, explanations and supporting results.

(3 marks)