The forward premium in electricity markets: An experimental study

Koten, Silvester Van

doi:10.1016/j.eneco.2020.105059

Cited by 4 publications

(3 citation statements)

References 35 publications

(50 reference statements)

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“…The empirical literature (e.g., Bessembinder and Lemmon [2002]; van Eijkel et al . [2016]; van Koten [2021]) documents the use of forward contracts to hedge against the risk associated with profit variation in wholesale electricity markets.…”

Section: Related Literaturementioning

confidence: 99%

“…The variation in an LSE's profit can be particularly pronounced when the LSE is required to serve all realized demand at a fixed retail price. The empirical literature (e.g., Bessembinder and Lemmon [2002]; van Eijkel et al [2016]; van Koten [2021]) documents the use of forward contracts to hedge against the risk associated with profit variation in wholesale electricity markets.…”

Section: Related Literaturementioning

confidence: 99%

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Market Structure, Risk Preferences, and Forward Contracting Incentives*

Brown,

Sappington

2023

The J Industrial Economics

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We examine the determinants of the levels of forward contracting preferred by generators and buyers of electricity. Increased forward contracting systematically reduces the variance of a generator's profit, so a generator prefers higher levels of forward contracting as market uncertainty or its aversion to risk increases. In contrast, increased forward contracting can either increase or reduce the variance of a buyer's profit. Consequently, a buyer can prefer either reduced or increased levels of forward contracting as market uncertainty or its aversion to risk increases.

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Section: Related Literaturementioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Market Structure, Risk Preferences, and Forward Contracting Incentives*

Brown,

Sappington

2023

The J Industrial Economics

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“…Financial derivatives are important tools for risk management in the power market. In the power markets of typical countries, market participants use contracts for difference (CFDs), power futures and power options products and other financial derivatives [144,145] to suppress the risks from fluctuating spot prices.…”

Section: Basic Paradigm For the Study Of Power Markets Under The New Situationmentioning

confidence: 99%

Key Issues and Technical Applications in the Study of Power Markets as the System Adapts to the New Power System in China

et al. 2021

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To reach the “30·60” decarbonization target (where carbon emissions start declining in 2030 and reach net zero in 2060), China is restructuring its power system to a new energy-based one. Given this new situation, this paper reviews previous studies on the power market and highlights key issues for future research as we seek to adapt to the new power system (NPS). Based on a systematic literature review, papers on the operational efficiency of the power market, participants’ bidding strategies and market supervision were identified. In a further step, papers with high relevance were analyzed in more detail. Then, key studies that focused on market trading under China’s new power system were picked out for further discussion. New studies were searched for that pertained to new energy mechanisms and bidding, the transition from coal-fired power, flexible resources and the technical applications of simulations. The quantitative analysis supports the construction of a basic paradigm for the study of power markets that is suitable for the new power system. Finally, the theoretical basis and application suggestions for power market simulations are introduced. This study summarized the existing research on the power market and further explored the key issues relating to the power market as it adapts to the NPS, hoping to inspire better research into China’s power sector, and promote safe, low-carbon, and sustainable development in China’s power industry.

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Higher moments in the fundamental specification of electricity forward prices

Gianfreda

Scandolo

Bunn

2022

Quantitative Finance

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An extended specification for estimating the risk premia necessary for the forward pricing of wholesale electricity is developed in order to respond to the increasing need for more precise risk management of hedging positions in practice. Using Taylor expansions, we provide new specifications for the electricity forward premium including its dependency on all four moments of the expected wholesale price density as well as the higher moments of the demand density including skewness and kurtosis. Overall we argue that previous models have been underspecified and that the extended formulation proposed in this analysis is robust and worthwhile.

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The forward premium in electricity markets: An experimental study

Cited by 4 publications

References 35 publications

Market Structure, Risk Preferences, and Forward Contracting Incentives*

Market Structure, Risk Preferences, and Forward Contracting Incentives*

Key Issues and Technical Applications in the Study of Power Markets as the System Adapts to the New Power System in China

Higher moments in the fundamental specification of electricity forward prices

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