The Syldavian Power and Light Company owns one generating plant and serves some load. It has been actively trading in the electricity market and has established the following position for 11 June between 10 : 00 and 11 : 00 A.M.:
Long-term contract for the purchase of 600 MW during peak hours at a price of 20.00 $/MWh
Long-term contract for the purchase of 400 MW during off-peak hours at a price of 16.00 $/MWh
Long-term contract with a major industrial user for the sale of 50 MW at a flat rate of 19.00 $/MWh
The remaining customers purchase their electricity at a tariff of 21.75 $/MWh
Future contract for the sale of 200 MWh at 21.00 $/MWh
Future contract for the purchase of 100 MWh at 22.00 $/MWh
Call option for 150 MWh at an exercise price of 20.50 $/MWh
Put option for 200 MWh at an exercise price of 23.50 $/MWh.
Call option for 300 MWh at an exercise price of 24.00 $/MWh.
The option fee for all the options is 1.00 $/MWh. The peak hours are defined as being the hours between 8 : 00 A.M. and 8 : 00 P.M. The outcome for 11 June between 10 : 00 and 11 : 00 is as follows:
The spot price is set at 21.50 $/MWh.
The total load of the Syldavian Power and Light Company is 1200 MW, including the large industrial customer.
The power plant produces 300 MWh at an average cost of 21.25 $/MWh.
a. Assuming that all imbalances are settled at the spot market price, calculate the profit or loss made by the company during that hour. b. What value of the spot market would reduce the profit or loss of the company to zero? Would this change in spot price affect any of the option contracts?
