Analysis of Australian Electricity Industry Restructuring Homework

This homework assignment analyzes the restructuring of the Australian electricity industry, comparing the industry structure before and after the restructuring, including details on generation, transmission, and distribution. The assignment explores the stated rationale for the restructuring, focusing on consumer surplus and competition, and provides an insightful commentary on the changes. Additionally, the solution includes the construction of a supply curve for generators A, B, and C, calculating market prices, quantities produced, and revenue earned for different forecasted loads (400 MW, 600 MW, and 875 MW). The solution demonstrates calculations of average prices for each generator under different load conditions. The assignment concludes with a list of references, which includes books, articles, and reports related to the electricity market and restructuring.

SOLUTIONS:
QUESTION ONE:
a. Australian electricity industry before and after restructuring:
Prior to restructuring
Generation Transmission Distribution
WAPDA (Water & Power
Development Authority’s)
National transmission
and dispatch company
(NTDC)
WAPDA (Water &
Power Development
Authority’s)
Total capacity=6546 Mw
Subsequent to restructuring
Generation Transmission Distribution
Type Company Capacity National transmission
and dispatch company
(NTDC)
Rural Retail-
companies
Hydro WAPDA 31525 KESC FESCO
IPP’S 549 GEPCO
Thermal IPP’S 43547 LESCO
GENCO’
S
146030.103 MEPCO
KESC 9318 SEPCO
Nuclear PAEC 4996 HESCO
Wind AEDB 457 PEPCO
Solar AEDB 26 KESCO
Total capacity=95730.103 Mw
Abbreviations:
IESCO (Islamabad Electric Supply Company) LESCO (Lahore Electric Supply Company)
FESCO (Faisalabad Electric Supply Company) PESCO (Peshawar Electric Supply Company)
MESCO (Multan Electric Supply Company) GEPCO (Gujranwala Electric Supply Company)
QESCO (Quetta Electric Supply Company) SEPCO (Sakkhar Electric Supply Company)
TESCO (Tribal Electric Supply Company)
b. What was the ‘stated’ rationale for electricity industry restructuring?
 Consumer surplus significantly increased due to competition
 Provided an ideal institutional setting for the sustenance of competition
 To breakdown the monopoly markets of establish industries
 Variables for retail competition and wholesale generation results in lower retail
prices

c. What is the most insightful comment you can make about the stated rationale for
restructuring (as in part b) above)?
After restructuring the unbundled era portion is additionally isolated into a few free
power creating organizations. The price of producing electricity changed at a great
extent and also the distribution cost reduced.
QUESTION TWO:
a. Build the supply curve.
0 100 200 300 400 500 600 700 800 900
Quantity in MWh
0
2
4
6
8
10
12
14
16
18
Price in $/MWh
SUPPLY CURVE
B
A B
C
A
C B
C
A
Figure 1: Supply curve for generators A,B and C

b. Assume that this market operates unilaterally, that is, there is no demand-side bidding; the
demand is instead based on forecast developed by the Market Operator. Calculate the market
price, quantity produced by each generator, and the revenue earned by each generator, for each of
the following forecasted loads: 400 MW, 600 MW, and 875 MW.
SOLUTION:
From the bidding chart, we can calculate an average price for each generator. i.e. mean of the
prices.
average price=∑ OF BIDDING PRICE INTANCES
∑ OF INSTANCES
LOAD 400
A: (12.5)/1=12.5
B:(10.5)/1=10.5
C:(13.5)/=13.5
LOAD 600
A: (14+12.5)/2=13.25
B:(10.5+13)/2=11.75
C:(13.5)/1=13.5
LOAD 875
A: (12.5+14+18)/1=14.83
B:(13+15+10.5)/1=12.83
C:(13.5+15.5+14.5)/=14.5
The consumed energy is calculated per hour and the expressed in watts per hour. This is the si
unit for the pricing of energy.
Load (MW) Generator Market price
($/MWh)
Quantity (MWh) Revenue ($)
400 A 10.50 200 2100.00
B 12.50 200 2500.00
C 13.00 0 0.00
600 A 13.25 150 1987.50
B 11.75 400 4700.00
C 13.50 50 675.00
875 A 14.83 225 3336.75
B 12.83 500 6415.00
C 14.50 150 2175.00

REFERENCES:
http://www.resourcesandenergy.nsw.gov.au/investors/investment-opportunities/electricity-
generation
http://www.aemo.com.au/Electricity/Wholesale-Electricity-Market-WEM/Dispatch-and-market-notices
Banks, Ferdinand E (1996) Economics of Electricity and Privatization, Energy, Vol. 21, No. 4, pp 249-261.
Beesley, M E (ed.) (1996) Regulating Utilities: A Time for Change, Institute of Economic Affairs, London
Business School.
Belyaev, L.S (2011) Electricity Market Reforms: Economics and Policy Challenges, Springer, New York.
Gunn, Calum (1997) Energy efficiency vs economic efficiency, Energy Policy, Vol. 25, No. 2, pp 241-254.
Hunt, Sally and Shuttleworth, Graham (1996) Competition and Choice in Electricity, John Wiley,
Brisbane.
Khan, Edward (1990) Structural Evolution in the Electric Utility Industry, Public Utilities Fortnightly,
January 4, 1990, pp 9-17.
Spicer, Barry; Bowman, Robert; Emanuel, David; and Hunt, Alister (1991) The Power to manage:
Restructuring the New Zealand electricity department as a state-owned enterprise, Oxford,
Melbourne.
Stevenson, Rodney and Ray, Dennis (1993) Market forces and planning by regulation, Utilities Policy,
October 1993, pp275-282.
Surrey, John (1996) The British Electricity Experiment, Earthscan, London.
Yajima, Masayuki (1997) Deregulatory Reforms of the Electricity Supply Industry, Quorum Books,
London.