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Use of put options as financial risk management tools for solar energy projects in La Guajira, Colombia. Case study for Toro Moreno Solar Farm
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This thesis explores the use of European put options as a risk management tool for solar energy
producers in Colombia, with a focus on the Toro Moreno Solar Farm in La Guajira. It builds on
the methodology developed by Contreras and Rodríguez (2014) for wind energy, adapting it to
the characteristics of solar generation. Electricity market prices are modeled using ARIMA GARCH techniques, accounting for structural breaks and conditional volatility. Solar production
is estimated from ten years of irradiance data and used to calculate the levelized cost of energy
(LCOE), which serves as the strike price in the option valuation. The pricing of weekly European
put options is performed using Empirical Martingale Simulation (EMS) and P-Empirical
Martingale Simulation (EMPS). Results show that put options become especially valuable in
periods of high price volatility, where electricity prices are more likely to fall below the defined
strike price. These findings suggest that financial instruments such as put options can provide a
useful hedge for small and medium-scale solar producers operating in uncertain market
conditions.
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Solar investments Put options Risk management Colombia ARIMA-GARCH