Question

Orlando Power is a GenCo that participates in the trading hour 1PM – 2PM on 10/13/2021. It has following positions for the trading hour: . . Signed a long-term contract that sells 460MW to a local utility at 14$/MWh Purchased a futures contract to buy 100MW at 12$/MWh Purchased a put option to sell 50MW at exercise price of 15.5$/MWh. The option fee is 1$/MWh. Orlando Power has one generating unit with cost function C = 9.5P+36$/MWh. It turns out that the spot market price for the hour is 13.8 $/MWh. Calculate the profit/loss that Orlando Power can make in this trading hour.

Answer 1

Orlando Power experiences a loss of $9389 during the specified trading hour after taking into account the revenue from a long-term contract, the cost of buying futures contracts, spot market sales, the generation cost of electricity, and the option fee for a put option.

Step-by-step explanation:

To calculate the profit/loss for Orlando Power during the trading hour, we need to consider the long-term contract, futures contract, put option, and the cost of generating electricity. Here's how to calculate it:

• Revenue from long-term contract = 460 MW * $14/MWh = $6440
• Cost of buying futures contract = 100 MW * $12/MWh = $1200
• Spot market sales (390 MW not covered by contracts) = 390 MW * $13.8/MWh = $5382
• Cost to generate the 390 MW = 390 MW * ($9.5P+36/MWh) = 390 MW * ($9.5*390+36/MWh) = $3921 + $14040 = $17961
• Put option is out of the money since the exercise price is higher than the spot market price, so it's not exercised and the only cost is the option fee = 50 MW * $1/MWh = $50

Total profit/loss = Revenue from contracts + Spot market sales - Cost of futures - Cost of generation - Option fees = $6440 + $5382 - $1200 - $17961 - $50 = -$9389

Orlando Power experiences a loss of $9389 during this trading hour.