What is power tolling?
In a tolling agreement, the plant owner (toller) provides the power station; the counterparty (toll payer) supplies the fuel (e.g. natural gas) and receives the electricity. The toll payer pays a toll — a fee per MWh or per kW-month — for the right to use the plant. So the toll payer’s margin is: power revenue minus fuel cost minus toll minus any variable O&M. If that margin is positive, running the plant is profitable for them; if negative, they would lose money.
Who does what?
- Plant owner (toller): Owns the asset, receives the toll (and sometimes a share of the spread).
- Toll payer: Brings gas (or other fuel), pays the toll and variable costs, sells the power. Their profit = power price − fuel cost − toll − variable O&M.
Tolling is common for gas-fired plants where a trader or utility wants exposure to power without owning the asset.
Formulas
All per MWh. Heat rate is in MMBtu/MWh; gas in $/MMBtu; power in $/MWh.
Heat rate dynamics
Heat rate is a key input but it is not fixed: it depends on unit efficiency and load. At part load, efficiency drops and heat rate (MMBtu per MWh) rises; at full load, modern units achieve their best heat rate.
Typical ranges:
- Combined-cycle (CCGT): ~6.5–7.5 MMBtu/MWh (efficient baseload/mid-merit).
- Simple-cycle (peaker): ~9–11 MMBtu/MWh (less efficient, fast start).
In real tolling deals, the contract may include a heat-rate guarantee: if the plant runs worse than a benchmark heat rate, the toll payer may pay a heat-rate penalty (extra cost to the toll payer); if the plant beats the benchmark, the owner may pass a heat-rate bonus (credit or lower effective toll) to the toll payer. Use the calculator heat rate as your expected or contractual benchmark.
Variable O&M — what it includes
Variable O&M are costs that vary with generation (unlike fixed costs like insurance or debt). They are usually broken down as:
- Maintenance: Consumables, wear-and-tear, inspections tied to running hours or starts.
- Start-up costs: Extra fuel and wear for each start; often expressed as $/start or allocated $/MWh over expected output.
- Emissions costs: CO₂ (e.g. EU ETS, carbon tax), NOₓ, SO₂, or other environmental compliance costs passed through as $/MWh.
In the calculator you can enter each component; the total Variable O&M is the sum and is subtracted from gross margin to get net margin.
Contract structures & risks
Real tolling deals can take several forms beyond a simple $/MWh toll:
- Fixed toll: $/MWh or $/kW-month; predictable for both sides.
- Variable toll indexed to fuel spread: Toll rises when spark spread is high (owner shares upside); reduces toll payer’s margin in strong markets.
- Capacity payments: Toll payer or owner may receive capacity payments; allocation is contract-specific.
- Profit-sharing: Owner gets a share of the spread above a threshold.
- Call options: Toll payer has the right (not obligation) to call the plant at agreed terms; pays premium or toll when exercised.
Risks:
- Counterparty risk: Default of the plant owner or the toll payer; collateral and credit terms matter.
- Availability risk: Forced outages or derates; contracts usually define who bears the risk (e.g. toll payer may still pay capacity toll but not run).
Why use this calculator?
You can quickly see how power price, gas price, heat rate, and toll interact. Raise gas or toll and watch net margin drop; raise power and see when the deal flips into profit. The break-even power price tells you the minimum power price needed to cover fuel, toll, and O&M.