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Impact of Carbon Prices on Wholesale Electricity Prices and Carbon Pass-Through Rates in the Australian National Electricity Market

This paper investigates the effect of a carbon price on wholesale electricity prices and carbon-pass-through rates in the states comprising the Australian National Electricity Market (NEM). The methodology utilize an agent-based model, which contains many features salient to the NEM including intra-state and inter-state transmission branches, regional location of generators and load centres and accommodation of unit commitment features. The model uses a Direct Current Optimal Power Flow (DC OPF) algorithm to determine optimal dispatch of generation plant, power flows on transmission branches and wholesale prices. The results include sensitivity analysis of carbon prices on wholesale prices and carbon pass-through rates for different states within the NEM.

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JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q54: Climate; Natural Disasters and Their Management; Global Warming

Keywords: Carbon pass-through, Carbon price, Electricity prices, Agent-based model, DC OPF Algorithm, Australian National Electricity Market

DOI: 10.5547/01956574.36.3.pwil

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Published in Volume 36, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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