Analysis of fixed volume swaps for hedging financial risk at large-scale wind projects

Large scale wind power projects are increasingly selling directly into wholesale electricity markets without the benefits of stable (fixed price) off-take agreements. As a result, many producers seek financial hedging contracts to mitigate exposure price risk. One particular contract - “fixed volume swap” has gained widespread use, but it poses several liabilities for that reduce its effectiveness. In this paper, we examine problems associated with fixed swaps and explore possibilities improving their performance. Using hypothetical project in Southwest Power Pool (SPP) market as case study, first look at how “shape risk” (an imbalance between actual production hourly targets specified by terms) negatively impacts performance whether could be remedied through improved design. multi-objective optimization algorithm, find examples alternative parameters (hourly targets) more effective increasing revenues during low performing months do so lower cost than conventional swaps. Then “basis (a discrepancy prices “node” where injects grid, regional hub can impact Overall, our results suggest would better served substantially volumes production, certain should not all. Another key finding is improves modest reductions basis This indicates eliminating transmission congestion issues across grid may necessary improve