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The Entry Cost Shock and the Re-rating of Power Prices in New South Wales, Australia

  • Paul Simshauser
  • Elizabeth Molyneux
  • Michelle Shepherd

"Australia has long been the beneficiary of low, stable power prices. A decade-long state of oversupply underpinned this result and while plant capital costs had been rising, the cost of capital had been declining. These offsetting effects locked the wholesale market into an average cost of $35-$40/MWh. However, from 2007, a simultaneous and sharp rise in new entrant plant capital costs and the cost of capital occurred. The combined effects crept up on the industry while it was in a state of oversupply. This 'entry cost shock' disrupted a 7 year long equilibrium price, with average power system cost rising to $60/MWh." Copyright (c)2010 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

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Article provided by The University of Melbourne, Melbourne Institute of Applied Economic and Social Research in its journal Australian Economic Review.

Volume (Year): 43 (2010)
Issue (Month): 2 ()
Pages: 114-135

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Handle: RePEc:bla:ausecr:v:43:y:2010:i:2:p:114-135
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  1. Simshauser, Paul, 2009. "On Emissions Trading, Toxic Debt and the Australian Power Market," The Electricity Journal, Elsevier, vol. 22(2), pages 9-29, March.
  2. Paul L. Joskow & Edward Kohn, 2002. "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 1-35.
  3. Paul Simshauser, 2008. "The Dynamic Efficiency Gains from Introducing Capacity Payments in the National Electricity Market," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 41(4), pages 349-370, December.
  4. Anderson, Edward J. & Hu, Xinin & Winchester, Donald, 2007. "Forward contracts in electricity markets: The Australian experience," Energy Policy, Elsevier, vol. 35(5), pages 3089-3103, May.
  5. repec:eap:articl:v:35:y:2005:i:1-2:p:23-43 is not listed on IDEAS
  6. Paul Edward Simshauser & Phillip Wild, 2009. "The Western Australian Power Dilemma," Energy Economics and Management Group Working Papers 2-2009, School of Economics, University of Queensland, Australia.
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