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Deep Hedging of Green PPAs in Electricity Markets

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  • Richard Biegler-Konig
  • Daniel Oeltz

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.

Suggested Citation

  • Richard Biegler-Konig & Daniel Oeltz, 2025. "Deep Hedging of Green PPAs in Electricity Markets," Papers 2503.13056, arXiv.org.
    • Handle: RePEc:arx:papers:2503.13056
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    References listed on IDEAS

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    1. Hans Buehler & Phillip Murray & Mikko S. Pakkanen & Ben Wood, 2021. "Deep Hedging: Learning to Remove the Drift under Trading Frictions with Minimal Equivalent Near-Martingale Measures," Papers 2111.07844, arXiv.org, revised Jan 2022.
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