To complete this assignment, you will need the excel file ESGPortfolios.xls which describes the variable operating costs, fuel efficiencies, and CO2 emissions rates of the set of power plants.
The generation capacities of the portfolios ranges from around
2000 MW to almost 4000 MW. Each portfolio contains differing generation technologies with varying operating costs.
In each hourly market, the supply bids of each generator will be used to construct an aggregate supply curve and intersected with a demand curve.
(i) Suppose all firms bid competitively into the spot market in an hour when demand is 18,200 MWh. What is the market clearing wholesale price?
(ii) Compute the carbon emissions associated with electricity production in this hour.
(iii) Compute the short run profits (i.e. revenues less variable operating costs) earned by ‘Big Coal’ and ‘Fossil Light’ in this hour.
(iv) Now suppose that this market was subject to a carbon tax of $10 per ton of CO2. How would the introduction of this tax a↵ect the market clearing price, firm profits (at Big Coal and Fossil Light), and total emissions? Please be specific (i.e. compute the new price, profits, and associated
emissions) as part of your answer.