A diversified portfolio of tokenised revenue streams can provide hedging opportunities for renewable electricity generators

Abstract

AbstractThe revenue streams of renewable energy generators are subject to both price and volumetric risks, owing to the variable nature of weather patterns. This negatively impacts viability of the generation projects. Blockchain‐based decentralised finance methods may present new means for generators to hedge against such volatility. Tokenised revenue streams (RevToks) as a novel tool for electrical generators is proposed. By holding a RevTok, a participant can directly claim a portion of that generator's revenue. To articulate how such exotic financial arrangements may benefit renewable generators, a case study market simulation is performed. Generators can trade RevToks to diversify their cash flows, decreasing their variance and thus overall risk exposure. The simulation uses Multiportfolio Theory — an extension of Modern Portfolio Theory — to optimise the RevTok holdings of all generators simultaneously. Examining the results show that RevTok trades occur between generators of varying technology and remuneration schema. By trading RevToks amongst themselves, all generators achieve far less volatile revenue streams, while maintaining constant expected revenues. Thus, the RevTok paradigm potentially offers improved revenue hedging when compared to established methods for energy firms. Results show that implementing such a blockchain‐based arrangement for existing central pool operators unlocks downstream opportunities for renewable generators.