Equilibrium Forward Premium and Optimal Hedging in Electricity Markets with Green and Brown Producers
-
Shanshan Yuan [1] ; Juan Ignacio Peña [1]
-
[1] Universidad Carlos III de Madrid
Universidad Carlos III de Madrid
Madrid, España
-
- Localización: Notas técnicas: [continuación de Documentos de Trabajo FUNCAS], ISSN-e 1988-8767, Nº. 800, 2019
- Idioma: inglés
- Enlaces
-
Resumen
We develop an equilibrium model to price forward contracts for electricity introducing green (renewable energy) producers besides the conventional (brown) producers and retailers. Assuming inelastic spot demand and market power of the conventional producers, we get the optimal production of each producer as a function of both forward and spot prices. The model provides the optimal forward positions of risk-averse market participants and predicts that the forward premium is negatively (positively) related to the variance of spot prices, and positively (negatively) related to the skewness of spot prices when the expected demand is low (high) and is negatively related to the kurtosis of spot prices at all levels of expected demand. The forward premium increases when the uncertainty risk of green production growths. We test the model’s theoretical predictions through an empirical application based on hourly data of the Spanish electricity day-ahead and spot (real-time) markets during 2017. The empirical results largely support the theoretical predictions.
