Economics
The coal operator keeps its profit and fixed-cost recovery. What changes is who delivers the MWh. Given the deal structure and an assumed grid bonus, the ARC price required to clear the transaction falls out directly.
Model calculation for illustrative purposes only. All values are modelled after potential Philippine power purchase agreement structures. The renewable delivery scenario assumes a 50 MW stream of SPARCs replaced by a solar-plus-storage configuration under a 12-hour firm delivery obligation. Parameters including VPPA, variable costs, grid bonus, and ARC quantities are indicative and subject to revision based on stakeholder feedback.
The contractual value pool
Every SPARC transaction is anchored to VPPA which is the total contract value per MWh under the existing coal PPA, covering both energy and allocated capacity components. The mechanism reallocates who receives what portion. The total value is preserved.
Remains the PPA counterparty. Receives all payments from the grid operator, then settles bilaterally with the RE operator. Profit and fixed-cost recovery are fully preserved.
VPPA decomposed · scale: $100
Acquires SPARCs and assumes delivery. We assume total delivery cost is $81/MWh (solar, battery, risk, insurance). Four revenue streams stack up to cover that cost, with the ARC price derived as the gap that remains.
Revenue stacking against delivery cost · scale: $81
VPPA ($100) minus VC avoided ($42) and risk relief ($3). The floor below which coal will not transfer a SPARC. The profit and fixed-cost recovery embedded in the $55 are fully preserved.
VC avoided ($42) and risk relief ($3) that coal genuinely saves when it transfers a SPARC. These flow through to the RE operator as the economic foundation of the bilateral arrangement.
TSO payment where RE operator shifts injection to relieve congestion or balancing stress. Assumed at $8/MWh here; see sensitivity table below.
Given delivery costs of $81 and $53 already covered, the remaining $28/MWh must come from ARC monetisation. At 0.95 tCO₂/MWh avoided, this implies a net carbon price of roughly $29/tCO₂. The ARC price is the output of the model, not an assumption.
The clearing condition
The transaction clears when the four revenues stacked by the RE operator (VC avoided passed through, risk relief, grid bonus, and ARC monetisation) sum to at least the full RE delivery cost of $81/MWh.
With a grid bonus of $8/MWh, the ARC needs to deliver $28/MWh, implying a net carbon price of roughly $29/tCO₂. This is an output of the model structure, not a chosen input. It adjusts as grid bonus or delivery cost changes.
The primary sensitivity is firming cost. As battery storage prices continue to fall, the ARC price required shrinks proportionally, pulling the mechanism into viable territory at progressively lower carbon prices.
| Grid bonus | ARC value needed | Net carbon price |
|---|---|---|
| $0/MWh | $34/MWh | ~$36/tCO₂ |
| $5/MWh | $31/MWh | ~$33/tCO₂ |
| $8/MWh illustrated | $28/MWh | ~$29/tCO₂ |
| $10/MWh | $26/MWh | ~$27/tCO₂ |
| $15/MWh | $21/MWh | ~$22/tCO₂ |
As storage firming costs fall, the required ARC price falls further. A drop in the firming adder from $25 to $10/MWh reduces the required ARC value by $15/MWh, bringing the implied carbon price to around $15/tCO₂.