2023 Australasian Actuarial Education and Research Symposium

Giovani Gracianti

University of Melbourne

Hedging volume and price risks in wind energy production

This is joint work with Rui Zhou, Xueyuan Wu, Johnny Li

Revenue uncertainties for wind energy producers arise from two primary sources: fluctuations in the volume of energy produced and in the energy price. While most existing studies address only one of these risks, our research holistically tackles both. By considering both power futures and wind derivatives as hedging instruments, we aim to develop comprehensive risk-mitigation strategies. Our initial step involves modelling the dynamics of electricity prices and wind energy production across multiple regions. This model adeptly captures the relationship between energy prices and wind production volumes, as well as the dependence of energy production across different locales. Building on this foundation, we design hedging portfolios that aim to minimize revenue volatility. Preliminary findings suggest that a balanced approach, which combines both power futures and wind derivatives, can significantly reduce income volatility as compared to singular derivative product strategies. Furthermore, our research examines how the geographical distribution of wind energy capacities can impact revenue fluctuations and the efficacy of our hedging strategies.