Work

Hedging renewable power purchase agreements

Year: 2024

Type: article

Abstract: This paper deduces the optimal futures position for hedging joint price and production risks of a renewable Power Purchase Agreement. We develop static and dynamic closed-form and numerical copula-based hedging formulas and test the models employing exchange-traded electricity futures contracts and solar and wind PPA contract prices from California's CAISO area from 2009 to 2019. Electricity futures present a hedging effectiveness of 10% for solar PPAs. The tail risk of the hedged positions is 5% lower than the unhedged ones. In the case of wind PPAs, reductions in variance are 5%, whereas the decrease in the tail risk is 4%.

Source: Energy Strategy Reviews

DOI: 10.1016/j.esr.2024.101513

Authors: Juan Ignacio Peña, Rosa Rodríguez, Silvia Mayoral

Institution: Universidad Carlos III de Madrid

Language: English

Topic: Risk Management in Financial Firms

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDGs: Affordable and clean energy, Climate action

Open Access status: gold

Estimated APC paid: $3,260