How might rising gas prices impact on the price of electricity in the short run? How does your answer depend on the nature of demand for electricity? In this first question, you can assume the electricity market is a competitive market. Your answer should consider how a change in the price of gas might affect supply behaviour of gas-fired generation plants. (4 marks) b. Discuss how increased market power for gas-fired electricity producers may have led to higher electricity prices in light of the closure of a large but old coal fired ‘Northern’ generation plant. What might be the implications of this development for the efficiency of the electricity market? (4 marks) c. One proposal that has been suggested is to reinstate the coal fired ‘Northern’ generation plant. Assume that if operated, this plant could potentially provide a large share of the total electricity requirements for South Australia. What might be the implications of such a move and what considerations should be taken into account when deciding on this step? (3 marks) d. Assume that one option is to open the South Australian electricity market to Victorian suppliers. Assume that Victorian electricity producers generate power at a lower (and constant) cost due to the use of large coal fired power stations. Analyse the efficiency implications of such a step. (2 marks)
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