Elliott, RobertLyle, Matthew R.2012-06-282012-06-282009R.J. Elliott and M.R.Lyle, „A „Simple‟ Hybrid Model for Power Derivatives‟. Energy Economics 31 (2009) 757–7670140-9883http://hdl.handle.net/1880/49073Article deposited according to the policy found on the Elsevier website, , http://www.elsevier.com/wps/find/authorsview.authors/postingpolicy, June 28, 2012.This paper presents a method for valuing power derivatives using a supply–demand approach. Our method extends work in the field by incorporating randomness into the base load portion of the supply stack function and equating it with a noisy demand process. We obtain closed form solutions for European option prices written on average spot prices considering two different supply models: a mean-reverting model and a Markov chain model. The results are extensions of the classic Black–Scholes equation. The model provides a relatively simple approach to describe the complicated price behaviour observed in electricity spot markets and also allows for computationally efficient derivatives pricing.engElectricity pricingPower derivativesSeasonalityjournal article10.11575/PRISM/34060