Whitepaper By Brattle Economists Examines Effective Hedging Instruments For Renewable Resource Development

A whitepaper by Brattle economists examines how wind generators could use standard electric and gas forward contracts to hedge its revenue to reduce risk over mid- to long-term horizons. The whitepaper also demonstrates how to set effective hedge ratios to reduce merchant risk for a wind plant when a utility purchase power agreement (PPA) is not available. Its recommendations take into account the complexities of the seasonal and intraday timing of wind output and how it tends to be negatively correlated with spot power prices.

The steady and rapid growth of renewable generation resources in the U.S. over the last several years has caused many states to be well ahead of their renewable portfolio standard (RPS) targets. Accordingly, there is increasing interest in developing renewables as merchant assets not secured under a long-term PPA for their energy or renewable energy credits (REC) back to a utility.