Deep Hedging of Green PPAs in Electricity Markets
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Abstract
In power markets, Green Power Purchase Agreements have become an important contractual tool of the energy transition from fossil fuels to renewable sources such as wind or solar radiation. Trading Green PPAs exposes agents to price risks and weather risks. Also, developed electricity markets feature the so-called cannibalisation effect : large infeeds induce low prices and vice versa. As weather is a non-tradable entity the question arises how to hedge and risk-manage in this highly incom-plete setting. We propose a ''deep hedging'' framework utilising machine learning methods to construct hedging strategies. The resulting strategies outperform static and dynamic benchmark strategies with respect to different risk measures.
