Energy Finance

Wholesale electricity market

João Pedro Pereira
Nova School of Business and Economics
Universidade Nova de Lisboa
joao.pereira@novasbe.pt

April 3, 2023

1 Data and inputs

Consider an electricity market running the usual non-discriminatory, or marginal
bid pricing, day-ahead auction. The data for one-hour period from 10am to
11am is the following.
Demand is forecasted at 45 000 MWh.
The available generation is the following:
Plant Efficiency Max capacity Expected pro-
(MW) duction (MWh)
Wind na na 10 000
Solar PV na na 4 000
Hydro (run-of-river) na na 3 000
Coal 0.35 7 000 na
Nat Gas (CCGT) 0.55 15 000 na
Nat Gas (OCGT) 0.35 8 000 na
Diesel Peaker 0.20 1 000 na
Assume that all technologies can generate any fractional amount of their
maximum capacity.
Market prices of fuels:
Fuel Price Unit Calorific value Unit
Coal 198 EUR/ton 24 MMBtu/ton
Natural Gas 50 EUR/MWh
Diesel fuel 1.5 EUR/liter 136 MJ/gallon

2 Questions to turn in
Ex. 1 — Compute the optimal bid for each plant (assume they all bid at
marginal cost)

Ex. 2 — Compute the market-clearing price of electricity.

1
Ex. 3 — Compute the gross profit (total revenue – variable costs) for each
generation plant.