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PowerPlantPerformance
Table 2: The Impact of Cointegration on Power Plant Value
Total Value Flexibility Value
[m€/yr] [m€/yr]
Without Cointegration 53.9 28.0
With Cointegration 35.9 10.0

Seasonal effects and plant degradation
Difference -33% -64%
Theoutsidetemperatureinfluencesthecapacity
Source: KYOSEnergyConsulting
of gas-fired power plants. In the winter, with
colder temperatures, more oxygen results in
islabelledtheoptionvalue,extrinsicvalueorflexibilityvalue. highercapacitiesthaninthesummer.Theimpactof5%more

Variable O&M and start costs capacity in favourable periods (winters tend to have larger
Now we make the case gradually more realistic by adding sparkspreads)and5%lesscapacityinlessfavourableperiods
variablecosts.Theydependonthenumberofoperatinghours (summer)leadstoasmallincreaseof €0.2million.Duringthe
(inspections,overhauls)oronthenumberofstarts(extrafuel, lifetimeapowerplantwilllosesomeofitsefficiency.Although
extramaintenance).Withvariablecostsperproductionhour maintenance reduces the consequences, degradation may be
of €1.50/MWh,theplantvaluereducesby €2.9million. expectedespeciallyinthefirstperiodaftercommissioning.An

Minimum runtimes and start costs averageefficiencyof58%leadstoadecreaseof €0.5million.
Inpractice,therearenofossil-firedplantsthatareswitched

Contractual: take-or-pay obligation for natural gas
onandofffromonehourtothenext.Actualplantoperation Besidesthephysicalconstraintstherecanalsobecontractual
isconstrainedbyminimumtimestobeonoroff,whichweset limitationstofullyexploittheplantflexibility.Adedicatedgas
at24hourseach.Theimpactonplantvalueis €6.5million. contractwithatake-or-payclauserestrictstheflexibilityofthe
Takingintoaccountcostsperstartsof €12,600plus2,000GJ power plant, as the gas cannot be transported elsewhere. In
ofgas,theplantvaluereducesfurtherby €2.0million. ourcase,atake-or-payobligationistranslatedinaminimum

Maintenance and trips numberofoperatinghoursof5,000inthefirstyear.Asatake-
Planned maintenance is the time required for inspections or-pay contract is usually aligned with the expected
and planned repairs. For a longer-term analysis it is worth consumption,theimpactislimitedtoadecreaseof€0.7million.
incorporating an inspection scheme with both smaller
inspectionsandmajoroverhauls.Assumingtheplantwillbein Besidesthedescribedlimitations,moreconstraintscouldbe
m

aintenancefor20daysperyear,theplantvalueisreducedby applied,forexample,theramprate,althoughthisismorea
2.7million.Unplannedoutages(trips)havemoreeffectsthan limitation for coal plants. Also, the delivery of heat could
simply reducing the generated power production by a single imposemust-runobligationsforspecificplants.Environmental
percentage.Atripcanoccuratthestartofaproductionperiod, constraintslikemaximumNOxemissionswouldalsolimitthe
but also at the end where the financial consequences are flexibility,similarasfortake-or-paycontracts.Tohighlightthe
limited.Furthermore,afteratrip,adecisionneedstobemade effect of cointegration, a comparison is made with the full
iftheplantcanandshouldstartagain.Withanoutagerateof simulationmodel,butthecointegrationswitchedoff.Thelack
6%,inourexampletheplantvalueisreducedby €2.8million. of cointegration causes a value increase from €35.9 to €53.9
million.So,cointegrationreducestheplantvalueto67%ofthe
Figure 2: Build-Up Plant Value
‘normal’ Monte Carlo approach. This reduction is solely
attributabletothepricescenarios,wheresparkspreadsbecome
moreextreme.Thisbecomesanevenlargerproblemwhenthe
valuationhorizonincreases.
Comparing Option Values
The option or flexibility value of a power plant is the
difference between the intrinsic value, derived from a static
curve (hourly, monthly or something else), and the average
valueoverthesimulations.Thisvalueisrealisedbyadapting
the production profile to changed price scenarios: If spreads
turnpositive,theplantisswitchedon.Ifspreadsturnnegative,
theplantisswitchedoff.Withthisbehaviourprofitsareadded
inpositivemarketcircumstances,whilelossesareavoidedby
stopping the production in negative market circumstances.
Source: KYOSEnergyConsulting
New-build plants with relatively high efficiency produce in
52 worldPower2009
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