Deep Hedging of Green PPAs in Electricity Markets

The transition of the electricity production from fossil fuels to renewable sources is one of the most important tasks of the present and future. State financed feed-in tariffs have helped to kick-off this transition. Today though, the production from renewable sources is more and more brought to liberalised electricity markets using so-called Green Power Purchase Agreements (PPA). PPAs are contracts that sell the production of a generating asset at a fixed price. PPAs are not new, they have helped to secure the large investment sums needed when building conventional power plants for decades. This is achieved by guaranteeing a secure stream of income to the owner of the asset. At the same time the buyer is exposed to market risk. A PPA is called "Green" when its underlying generating asset uses a renewable source. Due to the fact that electricity is not storable its production has to match consumption at every point in time.