Hedging in the Renewable Sector: A Case Study on Risk Mitigation for Solar Facilities

Abstract: This thesis examines the risks and implications posed by the expansion of the renewable energy sector, using the perspective of Swedish solar facilities and the renewable project developer OX2. The paper is presented as a case study, primarily based on a qualitative methodology, involving interviews with various stakeholders. Although solar energy currently accounts for a small fraction of Sweden's energy mix, the rapid expansion and spillover effects of neighboring countries are probable to intensify cannibalization and volatility. These factors are likely to impact OX2's operations negatively by reducing asset valuations and creating conflicts between investor and consumer preferences. The thesis also examines mitigation mechanisms of the identified risks and finds that operational hedges are deemed capital-intensive but can reduce the underlying risk. On the contrary, financial hedges are more assessable but do not reduce underlying risks; instead, they transfer them to the counterparty at a cost.