Hedging power market risk by investing in self-production from complementing renewable sources

Abstract The increasing competitiveness of renewable energy and the complementarity between water inflows and wind can be used as drivers to provide more security of supply for companies that want to invest in these renewable sources. From this perspective, this study focuses on the analysis of a large consumer that procures its energy in an electricity market involving both bilateral and spot market transactions. Moreover, the consumer can invest in a renewable self-production, deciding the new installed capacity and the moment to invest. Also, the hydro-wind complementarity is explored to reduce the spot market risk in which the consumer is exposed to, because of the intermittent renewable generation profile. Therefore, the proposed model is a specialized tool to further explore the complementarity between renewable sources in the optic of a large consumer. The effectiveness of the model is illustrated using historical data from the Brazilian market.