HRCO = Heat Rate Call Option

It’s an option based on the heat rate, which is the amount of natural gas needed to produce one megawatt-hour (MWh) of electricity. Traders use HRCOs to hedge or speculate on the relationship between gas prices and power prices.

It’s very common in energy markets, especially in natural gas and electricity trading.

Basically, it's a structure that helps power plants, utilities, and energy traders manage their exposure to the cost efficiency of converting gas into power.