Forwardkurve modellering af gas, elektricitet og CO2: Implementering og prisfastsættelse af Tolling kontrakt på gasfyret kraftværk

Flemming Due

Student thesis: Master thesis


This thesis focuses on forward curve modeling of gas, electricity and CO2 to price a Tolling Agreement on a gas-fired power plant. While the overall goal of the thesis is to price the power plant, the entire process on how to reach the price is as important as the pricing itself. The findings from the process of modeling the forward curves for the three above-mentioned commodities are briefly presented in this abstract. Since Holland is one of the countries in Europe that produces the highest percentage of its total electricity from gas, it is an appropriate market for the modeling of gas, electricity and CO2. Consequently, Dutch data is used for analyses of prices and returns on gas, electricity and CO2. From these analyses it is found that there is a clear co-variation between the three commodities. However, in general there is a stronger relation between gas and electricity compared to any co-variation in which CO2 takes part. After having analyzed the commodity returns, the co-integration test is carried out. This test indicates that the three commodities may be co-integrated which implies that the co-integrated model seems fair to use. As a result of this, the idea is to make a co-integrated model in which the linear combination of gas, electricity and CO2 is stationary. By implementing and calibrating the model to the Dutch market data, I get the result that the model seems to be doing the best job when modeling the data with two factors: one Brownian motion for the long term level and one mean reverting process around the long term level to capture the shocks in the market. In the end I get the price of a Tolling Agreement by making Monte Carlo simulation on the estimated model. 3

EducationsMSc in Business Administration and Management Science, (Graduate Programme) Final Thesis
Publication date2011
Number of pages85