Question 4 Contract pricing (25) A generator company has the following production cost curve C(q) = 300+20q+0.05q and the maximum generation capacity is 50 MWh. 1. Assume the generator wants to sell all its generation capacity in a forward contract, what should be the minimal price in $/MWh? (5) 2. Assume a load serving entity would like to purchase a call option with an exercise fee of $22/MWh and a maximum delivery capacity of 40 MWh. What should be the price of the option contract if the generator wants to make sure its production cost will be recovered in all possible scenarios (i.e., it will not lose money)? (10) 3. Assume the generator predicts the spot market price to be $28/MWh, what is the generator's risk premium if it agrees to sell a forward contract of $25/MWh of 50 MWh? (10)