2. Microeconomics fundamentals Flashcards
How is the marginal cost defined?
The change in total cost when output rises or declines by one unit
How are marginal cost mathematically determined?
As the derivative of total fuel costs with respect to the amount of electricity produced.
How is the wholesale marginal cost defined in the short run?
The variable cost of the last unit needed to satisfy the demand at any given time
Which cost is most important in the short term?
Marginal cost
Which cost is most important in the long term?
LCOE
Levelized cost of energy
What is the LCOE?
The average present cost of electricity generation for a generating plant over its life time
On which parameters ar the demand and generation bid based on the short term?
demand = marginal utility production = marginal cost
In which cases is generation not sufficient to supply all demand?
- Not enough available generation
2. Cost of supplying is above the price the demand is willing to pay
In which cases is the equilibrium price equal to the non-served energy?
When generation is not sufficient to supply all demand
- not enough available generation
- cost of supplying is above the price the demand is willing to pay
Which type of plan is best suited if it is expected to be producing during many hours?
high-investment & low-variable costs
Which type of plan is best suited if it is expected to be producing during few hours?
Low investment & high variable costs
How does a plant recover its investment cost if it only bids its marginal costs?
A plant can recover its investment cost during the hours where higher variable costs plants set the market price.
In the particular case of the highest variable cost plant, the key is the hours of non-served energy, where the price is set by the demand curve.
What is an oligopoly?
A market structure in which only a small number of generating companies compete and therefore they can influence market prices with their decisions.
What is one way a dominant player can exercise market power abuse?
Capacity withholding (or bidding higher than variable costs)
Leads to higher market price with other generation units.
What is the difference between a financial and a physical contract?
Physical contract: you get the product.
Financial contract: you do not get the product, but you need to buy the energy in the short-term market.
