The Effect of Different Market Conditions on the Hedge Value of Long-Term Contracts for Zero-Fuel-Cost Renewable Resources

For those looking to long-term contracting mechanisms to reduce electricity price volatility for ratepayers, it should be recognized that the hedge premium appears to be lower in a low-price natural gas environment. This property of long-term contracting makes it more difficult for renewables, already hard pressed to compete on cost with natural gas generation, to provide additional value to ratepayers through price certainty by virtue of being a zero-fuel-cost resource.