Valuation models

Power tolling agreements

Each day's option to run capacity at a heat rate and variable cost, with emissions, priced exactly as a spark spread option on that day's power and gas forwards, less the toll payments; intrinsic and extrinsic value, expected generation and power and gas deltas.

Inputs

Results

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Methodology

Conventions

  • Each day is a spark spread option: power less heat rate times gas less the running cost, for capacity times hours.
  • Daily forwards are read off the monthly curves; tolls are paid at each month end.
  • No start-up costs or minimum run times: an upper bound on a real plant's flexibility.

References

  • Deng, Johnson and Sogomonian (2001)

Formulas

Day
Q D E[max(P − hG − c, 0)]