Considering start-up costs and risk premia in a power generation cost model

The market price for electrical energy is one of the main decisive factors for operational and strategic questions of power generation companies (PGC). Using market simulation methods which simulate the market for electrical energy the price development can be investigated. However, the deficit of typical market simulation methods is, that these methods in general not consider all cost components of the power generation from the point of view of a PGC. Especially the consideration of start-up costs as well as the financial hedge of power plant outages by risk premia are supposed to be relevant cost components concerning the power generation and has to be analyzed and evaluated in detail. Considering these circumstances, this paper presents an extended market simulation method for the investigation of the price development in the central European market for electrical energy under consideration of start-up costs and risk premia.