Economics
A SPARC stream clears when the coal operator remains economically whole and the delivery party is paid enough to perform lower-emission delivery. Avoided coal cost, transferred risk, transferred obligation value, ARC value, and recognized grid value determine whether the range exists.
The contractual value pool
Every SPARC stream starts with VSETTLE: the expected settlement value allocated to the stream, including energy settlement and any capacity or availability value recognized for the delivery band. The mechanism does not create a new tariff. It reallocates value and obligation inside the existing contract.
Remains the PPA counterparty. Assigns fulfillment of a defined SPARC stream only if retained value is at least equal to self-delivery. Fixed-cost recovery stays in the coal operator floor unless a corresponding cost or obligation actually moves.
VSETTLE decomposed · scale: $95
Fulfills the registered SPARC stream and assumes delivery. We assume total delivery cost and risk of $81/MWh (solar, firming, incremental operations, and delivery risk). The stream clears only if available value covers that requirement.
Value stack against delivery requirement · scale: $81
VSETTLE ($95) minus avoided coal cost ($37), risk relief ($2), and transferred obligation value ($15 in this firm-band case). The floor below which the coal operator will not assign fulfillment of a SPARC stream. Fixed-cost recovery remains protected inside the retained value.
Avoided coal cost ($37), risk relief ($2), and transferred obligation value ($15) define the maximum stream fulfillment compensation the coal operator can provide while remaining whole in this firm-band case.
This scenario includes $8/MWh of recognized grid value. Given real congestion constraints in Southeast Asia, that value may be plausible where a regulator, system operator, offtaker, or other credible counterparty can define and allocate it.
Given delivery cost and risk of $81/MWh, $54/MWh available from coal passthrough, plus $8/MWh of recognized grid value, the remaining $19/MWh must come from ARC value. That implies a required net ARC price of roughly $20/tCO₂.
The clearing condition
The transaction clears when the delivery party's minimum required compensation is less than or equal to the maximum compensation the coal operator can provide while remaining whole.
In compact form: ARC value plus recognized grid value plus avoided coal cost, risk relief, and transferred obligation value must be at least equal to delivery cost plus delivery risk. In the highlighted congestion scenario, $8/MWh of recognized grid value reduces the residual ARC requirement to about $19/MWh, or roughly $20/tCO₂.
The primary sensitivities are avoided coal cost, firming cost, and net ARC value. Lower delivery cost or higher avoided coal cost can move the stream into a feasible negotiation range without changing the basic mechanism.
| Grid value | ARC value needed | Net carbon price |
|---|---|---|
| $0/MWh | $27/MWh | ~$29/tCO₂ |
| $5/MWh | $22/MWh | ~$23/tCO₂ |
| $8/MWh | $19/MWh | ~$20/tCO₂ |
| $10/MWh | $17/MWh | ~$18/tCO₂ |
| $15/MWh | $12/MWh | ~$13/tCO₂ |
Recognized grid value should be included only where it is defined by the regulator, system operator, offtaker, or another credible counterparty. If firming costs also fall, the required ARC value falls further.