Question: Question 1A [4 mark] For a generator in a spot market, the upsides from scarcity pricing are revenue sufficiency and adequate incentive for new investment.

Question 1A [4 mark] For a generator in a spot market, the upsides from scarcity pricing are revenue sufficiency and adequate incentive for new investment. What can be a downside of scarcity pricing for a generator?

Question 1B [4 marks] Financial contracts enable retailers to hedge the spot price risk. A retailer often has a portfolio of various financial contracts based on the demand profile of its customer base. Discuss which financial contracts would a typicalretailer opt for, and why? Illustrate your answer with a diagram depicting coverage of load profile through these contracts.

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