*2.2. Model Inputs*

Salient features of the present modeling exercise are as follows. There are five generation plant technologies available for deployment in the power system, including incumbent coal plant, combined cycle gas turbines (CCGT), open cycle gas turbines (OCGT), and VRE plant, specifically wind and Solar PV. Coal, CCGT and OCGT plant are all modeled as balance sheet-financings (gearing ca. 30%–36% to maintain BBB credit metrics). In contrast, VRE plant are assumed to be project financed (ca. 65%–70% debt), all of which are assumed to be underpinned by government-initiated CfDs (i.e., there are no on-market PPAs).

Table 1 sets out generation plant technology cost input assumptions and Table A1 in Appendix A outlines all relevant corporate and project financing assumptions. When combined, these inputs provide the data necessary to produce generalized estimates of average total cost (for incumbent coal plant) and generalized long run marginal costs (for new entrant plant). Crucially, with VRE plant—a strict annualized cost/price is used in all modeling; i.e., there is no "two-step pricing" assumed. Recent VRE transactions in the NEM have been struck in the low-\$50s/MWh, and appear to reflect either of (i) unique sites with excellent resource and network connection characteristics; or more commonely, (ii) what [48] have labelled two-step pricing. Two-step pricing involves a low cost 15-year PPA followed by *assumed* elevated market prices in years 16–30 based on externally-provided market forecasts. The combination of the low contracted PPA price (years 1–15) and high expected future spot prices (years 16–30) appear to collectively meet threshold equity returns, but the implication of two-step pricing is that average total cost of such projects is higher than recent PPA pricing suggests.


**Table 1.** Plant cost assumptions.
