Publications
Western Australia's Domestic Gas Reservation Policy: The Elemental Economics, 2017
Published in Economic Papers: A Journal of Applied Economics and Policy
Western Australia's Domestic Gas Reservation Policy: Modelling the Economic Impact with a CGE Approach, 2019
(with Peter Hartley, Rod Tyers, and Philip Adams) Published in The Economic Record
Working Papers
If large natural gas firms also generate electricity, is this detrimental for competition and trade? I consider eastern Australia, where both electricity and gas markets are operated as uniform-price auctions, and large firms participate across both. I estimate a supply function equilibrium model for the gas market, allowing for firms' asymmetric information about electricity. Two potential issues arise. First, when gas firms generate electricity from non-gas fuels, such as coal and renewables, they may have incentive to raise the gas costs for rival gas-fired generators, because this is passed through to higher electricity prices. I estimate that this has raised the price of gas on average, but by a modest 0.8 percent. Second, the realized gas price reveals rivals' signals about gas-fired electricity generation levels, so at higher gas prices firms shade their gas supply more. This leads to steeper gas-market supply schedules, exacerbating market power. I estimate that this adverse selection has reduced gains from trade in the gas market by 10 percent on average. Increasing the frequency with which the gas market is cleared could improve market outcomes.
Mark-Ups and Marginal Cost in Australia's Eastern Natural Gas Network, Updated Working Paper Soon
The cost of natural gas has become a high-profile issue in Australia and around the world. Australian governments have raised concerns about domestic exposure to high gas export prices and inadequate competition. Information about natural gas costs is necessary for policy makers responding these concerns, but unfortunately it is sparse. I estimate the marginal cost of natural gas for large retail firms in Australia. I develop a method that does not rely on assumptions about the functional form of marginal costs, or about which variables contribute to costs. I use a model of firm behaviour in the daily wholesale gas markets, and exploit the condition that profit-maximising firms should equalise the marginal revenue from gas supply across different locations. I use data from daily natural gas auctions in major hubs, including firm-level bids to supply natural gas. I estimate firms' net sales volumes and transport costs, and construct predictions of daily marginal revenues in each location. With this, I can recover the daily marginal cost of gas delivered to the domestic market. The resulting estimated costs can be interpreted broadly, and include the direct costs of gas acquisition and transport, but also any opportunity costs such as foregone electricity generation, export sales or storage value. I analyse how marginal costs depend on these key determinants.
Work in Progress
Coal Power Retirements and Electricity Prices, with Dakyung Seong and Won-Ki Seo
As more electricity is generated from renewable sources, coal-fired power plants are facing lower profitability and permanent retirement. This can raise concerns about reliability, and in some places, such as Australia, policy makers pay coal-fired power plants to remain operational. Using a functional time series approach, we model the relationship between the daily load profile, net of renewables generation, and the marginal fuel used to generate dispatchable electricity. We use this model to study the impact of closing alternative coal-fired power plants on the electricity fuel mix and prices.