Risk transformation of a zero-subsidy wind portfolio

Joaquin Narro analyses the hedging of a hypothetical zero-subsidy wind portfolio with base load products in the futures markets, in a situation that is becoming increasingly relevant to the portfolio managers of wind farms, due to the decline of the cost of wind generation. He evaluates the boundary conditions faced by portfolio managers and shows how they can take advantage of the available market mechanisms to reduce the risk of their portfolios

After years of declining costs, wind power is now among the cheapest of the new power plant technologies. This is manifested in an increase in zero-subsidy bids for wind projects, as more and more companies rely on wholesale market prices rather than extra government support for wind projects (Reuters). 

In this environment, a strong track record in building and operating wind farms is important, but not enough, as the ability of wind operators to handle market risk and sell electricity on the