1. LCC OBSERVATIONS 1
1st QUARTER 2016
LCC Observations
Wind & Solar Sector Update
14 June 2016
Using ASX Electricity Futures to Hedge a
Merchant Wind Farm
Summary
• LCC has used the actual generation data of a 30MW operating
wind farm in NSW and ½ hrly pool prices for Q1 2015 & 2016
to demonstrate the effectiveness of futures hedging strategies
compared to a generation following fixed price PPA.
• Hedge should be sized based on expected ENERGY
PRODUCTION over the contract window NOT rated POWER
• A combination of ½ hrly Futures & At or Close To The Money
Average Rate Puts (DEPENDING ON COST) is the preferred
hedge
• The effectiveness of the preferred hedge exceeds 85% of a
‘generation following fixed price’ PPA (measured by R2)
• High priced ½ hrly Caps (k = $300) are not effective as a
hedge even as protection for a larger short ½ hrly futures
position
• The effectiveness of the preferred hedge can support higher
leverage than a pure merchant profile
• Further insights available on request

2. LCC OBSERVATIONS 2
Real Data for Q1 2015 & 2016
for a NSW Wind Farm
Results using randomly selected daily Generation
& Price Profiles
• Daily ½ hrly generation and price profiles for Cullerin Range Wind Farm & NSW were sourced for Q1
2015 & 2016
• There was no observable correlation between ½ hrly generation & prices
• Analysis was undertaken using 100 combinations of randomly selected daily generation and daily
price profiles and results plotted for a synthetic 28 day (20 working days and 8 non-working days)
contract window
• Hedge effectiveness was assessed assuming hedges had been locked in at $50 & $35 and
compared to actual outcomes
• The preferred hedge may support an additional 5+% leverage over a merchant profile
Comments
Interpretation of the
graphics to the left:
• Objective of the
analysis is to closely
replicate the PPA
profiles in both cases
(upper & lower)
• In the low price case
(upper) the Monthly
Average Rate Puts are
mostly out of the
money and therefore
result in revenues
tracking the Merchant
profile (+ve variance to
the PPA profile)
• In the high prices case
(lower) the Monthly
Average Rate Puts are
mostly in the money
and therefore act like a
short futures position
• A trading strategy that
involves a short futures
position that is traded
out over time into
Average Rate Puts to
reduce costs
associated with time
decay may be an
attractive
implementation of the
strategy
14 June 2016

3. LCC OBSERVATIONS 314 June 2016
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