University of Twente Student Theses

Login

The impact of take-or-pay contracts on the profitability of a combined heat and power plant

Visser, J.W. (2012) The impact of take-or-pay contracts on the profitability of a combined heat and power plant.

[img] PDF
3MB
Abstract:This report contains a study on the influence of take-or-pay contract on the profitability of a combined heat and power plant (CHP). A combined heat and power plant is a power plant that next to electricity also generates usable heat. CHP plants can for example be used for district heating, the horticulture industry and industrial processes that require heat. A contract with a take-or-pay (TOP) clause gives the recipient the obligation to consume a minimum and/or maximum amount of gas stated in the contract. If this clause is violated, the recipient has to pay a penalty for the difference between the consumed amount and the contracted amount. One of the issues with using a contract with a TOP-clause for a CHP plant is the fact that over time the heat requirement of the installation is not always in line with the electricity requirement. In recent years, there has been a downward trend in electricity prices which makes it questionable whether these CHP plants should run to produce electricity. This uncertainty on power production has an impact on the consumed amount of gas and creates uncertainty about future levels of gas consumption. It could be possible that the current structure of the TOP-contracts is not suitable anymore in the new situation. If this is true, it requires modifications of the contracts in order for CHP plants to stay profitable. Such information is important for gas suppliers and (future) CHP plant owners. In order to gather insights on this problem, we have built an extension to an existing power plant model from EnergyQuants which can simulate a CHP. We have formulated a mathematical model which calculates the optimal distribution of starts and fuel consumption over the project horizon. Furthermore, we have improved the power plant model in order to be able to work with a deterministic heat demand. With this new model, we have run scenarios with realistic price data for the years 2009-2011. These scenarios yield the following results: • When take-or-pay constraints force a CHP to consume an amount of fuel which is 5% percent higher or lower than the optimal fuel amount, this leads to an average value decrease of 1,28%. • When take-or-pay constraints force a CHP to consume an amount of fuel which is 10% percent higher or lower than the optimal fuel amount, this leads to an average value decrease of 4,55%. • When take-or-pay constraints force a CHP to consume an amount of fuel which is 20% percent higher or lower than the optimal fuel amount, this leads to an average value decrease of 18,20%. • A take-or-pay contract that forces the amount of fuel that has to be consumed to be higher than the optimal amount, has more impact on the value of a plant than a constraint that force the fuel consumption to be less than the optimal amount. There is no clear preference for a contract with daily, quarterly or yearly gas prices. We suggest validating these results for more years, as fluctuations exist within the three years in our sample. This could mean that our sample data is not a representative sample for all data. Also, further research can be conducted on the addition of CO��demand, heat storage and a power grid connection.
Item Type:Essay (Bachelor)
Clients:
EnergyQuants
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management BSc (56994)
Link to this item:http://purl.utwente.nl/essays/62289
Export this item as:BibTeX
EndNote
HTML Citation
Reference Manager

 

Repository Staff Only: item control page