Analysis of applicability of financial derivatives in the granting of financing for the development of small hydroelectric projects in Honduras

Abstract

Over recent years the country has encouraged investment in renewable energy. Nevertheless, due to the new regulatory framework, doubts have emerged in all the people involved. The new law modifies the operation scheme of the country, deregulating the subsector and separating operations, and also dictates that the energy offers has to be made through bidding processes. Simulation is done presenting as a basis energy sales, by the producer, to the Regional Electricity Market for a certain number of years, aspect that has a considerable risk by not having a Purchase and Sale Contract. The Price of electricity has characterized for presenting wide fluctuations either in short or long periods, which increases the risk of generators and therefore the expected utility. Following the above, the main objective of this work is to demonstrate that the use of financial derivatives reduces the risk of hydroelectric projects.