Simulation of a Virtual Hub CORE and its Impact on Cross-Border PPAs

This article explores the potential of a Virtual Trading Hub (VTH) for the CORE region to reduce basis risk in cross-border Power Purchase Agreements (PPAs) and thereby improve the bankability of renewable energy projects; with consequent implications for the energy transition and greenhouse-gas (GHG) reductions. A model PPA is developed between a Dutch wind energy producer and a Czech offtaker to simulate realistic contract conditions. The analysis compares three reference market scenarios: the producer's local market (Netherlands), the DE-LU bidding zone, and a simulated CORE VTH constructed as a volume-weighted average of spot prices across the region. The study introduces and quantifies “decoupling loss” as the key metric for measuring financial exposure due to market price divergence, both on observed historical data and on expanded stochastically simulated theoretical scenarios. Results show that the VTH scenario exhibits the strongest correlation with both counterparties’ markets and significantly lower volatility in decoupling losses compared to the DE-LU reference, suggesting lower hedging costs and improved bankability. However, higher skewness and kurtosis in the VTH scenario indicate more frequent extreme outcomes. Despite this, the findings support the hypothesis that a CORE VTH can act as a more effective reference market for cross-border PPAs.