Electricity Forward Contracts

Abstract

Electricity is by nature a nonstorable commodity, and this raises questions on the exact link between spot and forward/futures prices. From arbitrage theory the discounted forward price in frictionless markets is today's spot price. This is a result of the buy‐and‐hold hedging strategy, which is infeasible for electricity because of no‐storability of the power. We discuss how to obtain forward prices for electricity based on spot models and view some recent results in this regard.