scholarly journals Determinants of the Forward Premium in the Nord Pool Electricity Market

Energies ◽  
2020 ◽  
Vol 13 (5) ◽  
pp. 1111
Author(s):  
Erik Haugom ◽  
Peter Molnár ◽  
Magne Tysdahl
Keyword(s):  
Electricity Market ◽  
Implied Volatility ◽  
Renewable Energy Sources ◽  
Ordinary Least Squares ◽  
Spot Price ◽  
Forward Contracts ◽  
Forward Premium ◽  
Realised Volatility ◽  
The Difference ◽  
Efficient Power

Nord Pool is the leading power market in Europe. It has been documented that the forward contracts traded in this market exhibit a significant forward premium, which could be a sign of market inefficiency. Efficient power markets are important, especially when there is a goal to increase the share of the power mix stemming from renewable energy sources. We therefore contribute to the understanding of this topic by examining how the forward premium in the Nord Pool market depend on several economic and physical conditions. We utilise two methods: ordinary least squares and quantile regression. The results show that the reservoir level and the basis (the difference between the forward and spot price) have a significant impact on the forward premium. The realised volatility of futures prices and the implied volatility of the stock market have strong effects on both the conditional lower and upper tails of the forward premium. We also find that, as the market has matured, the forward premium has decreased, indicating an increase in market efficiency.

scholarly journals Research on Risk Control under the Background of Electricity Futures Market

2020 ◽  
Vol 165 ◽  
pp. 06032
Author(s):  
Suyuan Chang ◽  
Dunnan Liu ◽  
Xiaoyu Li
Keyword(s):  
Electricity Market ◽  
Effective Means ◽  
Futures Market ◽  
Spot Price ◽  
Price Difference ◽  
Forward Contracts ◽  
Hedging Strategies ◽  
Futures Hedging ◽  
The Difference ◽  
Market Factors

In the process of electricity marketization, the electricity futures market is an effective means to avoid the risk of electricity price fluctuations. Based on the background of the electricity futures market, this article first analyzes the physical and market factors of the price fluctuation risk in the electricity market; then, it studies the principle and implementation effects of the power futures hedging function; finally, the manufacturer’s strategy of hedging based on the price difference between the spot price of electricity and the price of forward contracts has been studied in detail. This article believes that the electricity futures market can effectively hedge the spot market risk, and hedging strategies based on the difference between the spot price and the forward price are better.

scholarly journals The Impact of Variable Renewable Energy Penetration on Wholesale Electricity Prices in Japan Between FY 2016 and 2019

2021 ◽  
Vol 2 ◽  
Author(s):  
Makishi Sakaguchi ◽  
Hidemichi Fujii
Keyword(s):  
Renewable Energy ◽  
Electricity Market ◽  
Renewable Energy Sources ◽  
Ordinary Least Squares ◽  
High Price ◽  
Spot Price ◽  
Electricity Prices ◽  
National Analysis ◽  
The Impact ◽  
Price Spikes

The merit order effect (MOE), which renewable energy sources can decrease wholesale electricity prices, plays an important role in establishing low-carbon societies. After the liberalization of the electricity market, the trade volume of the Japan Electric Power Exchange (JEPX) day-ahead spot market drastically increased between 2016 and 2019; however, price spikes still occur often. Ordinary least squares and quantile regression analyses were applied in this study to investigate how wind and solar photovoltaics (PV) energy generation affect the JEPX day-ahead spot price by time, price range, and area, and we concluded that the MOE of wind increased between 2016 and 2019 while that of PV decreased during this time. In regard to the high price ranges, although wind generation is not significant in terms of reducing price spikes, PV had this effect in 2016 and 2017 but not during the other years covered. The study area was divided into four regions, and each area followed trends that were different from those of the national analysis. Overall, the key finding of our study is that wind power has more potential to reduce electricity prices than PV.

Implied Volatility of the KOSPI 200 Index Option Market

2015 ◽  
Vol 23 (4) ◽  
pp. 517-541
Author(s):  
Dam Cho
Keyword(s):  
Financial Crisis ◽  
Trading Volume ◽  
Implied Volatility ◽  
Spot Price ◽  
Strike Price ◽  
Market Pricing ◽  
Put Options ◽  
The Difference ◽  
Index Option ◽  
Option Market

This paper analyzes implied volatilities (IVs), which are computed from trading records of the KOSPI 200 index option market from January 2005 to December 2014, to examine major characteristics of the market pricing behavior. The data includes only daily closing prices of option transactions for which the daily trading volume is larger than 300 contracts. The IV is computed using the Black-Scholes option pricing model. The empirical findings are as follows; Firstly, daily averages of IVs have shown very similar behavior to historical volatilities computed from 60-day returns of the KOSPI 200 index. The correlation coefficient of IV of the ATM call options to historical volatility is 0.8679 and that of the ATM put options is 0.8479. Secondly, when moneyness, which is measured by the ratio of the strike price to the spot price, is very large or very small, IVs of call and put options decrease days to maturity gets longer. This is partial evidence of the jump risk inherent in the stochastic process of the spot price. Thirdly, the moneyness pattern showed heavily skewed shapes of volatility smiles, which was more apparent during the global financial crises period from 2007 to 2009. Behavioral reasons can explain the volatility smiles. When the moneyness is very small, the deep OTM puts are priced relatively higher due to investors’ crash phobia and the deep ITM calls are valued higher due to investors’ overconfidence and confirmation biases. When the moneyness is very large, the deep OTM calls are priced higher due to investors’ hike expectation and the deep ITM puts are valued higher due to overconfidence and confirmation biases. Fourthly, for almost all moneyness classes and for all sub-periods, the IVs of puts are larger than the IVs of calls. Also, the differences of IVs of deep OTM put ranges minus IVs of deep OTM calls, which is known to be a measure of crash phobia or hike expectation, shows consistent positive values for all sub-periods. The difference in the financial crisis period is much bigger than in other periods. This suggests that option traders had a stronger crash phobia in the financial crisis.

scholarly journals Risk Transfer in an Electricity Market

Mathematics ◽  
2021 ◽  
Vol 9 (21) ◽  
pp. 2661
Author(s):  
David Esteban Rodriguez ◽  
Alfredo Trespalacios ◽  
David Galeano
Keyword(s):  
Power Generation ◽  
Electricity Market ◽  
Electrical Energy ◽  
Electricity Demand ◽  
Spot Price ◽  
Forward Contracts ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Market Variables

Energy is traded using different products; long-term contracts or electricity forward contracts can assure the future transaction price. However, due to the difficulties in storing electrical energy for long periods and in large amounts, risks must be incorporated when defining contract prices through a Forward Risk Premia (FRP). This study analyzes the transfer of uncertainty from electricity market variables to the FRP in long-term contracts. We evaluate a type of econometric risk with the construction of Autoregressive Distributed Lag contagion models for the FRP using electricity demand, spot price, power generation via different technologies, and the Oceanic Niño Index. As a case study, we consider the Colombian electricity market. Our results show empirical models where the FRP has a short-term response with the following variables: hydropower generation, coal power generation, electricity demand, and Oceanic Niño Index, even though its transaction is reflected one or two years after the occurrence of the event.

scholarly journals Modeling Electricity Price and Quantity Uncertainty: An Application for Hedging with Forward Contracts

Energies ◽  
2021 ◽  
Vol 14 (11) ◽  
pp. 3345
Author(s):  
Alfredo Trespalacios ◽  
Lina M. Cortés ◽  
Javier Perote
Keyword(s):  
Electricity Market ◽  
Risk Premium ◽  
Spot Price ◽  
Risk Indicator ◽  
Forward Contracts ◽  
Hedging Strategy ◽  
Hedge Ratio ◽  
Nonparametric Distribution ◽  
Forward Risk Premium

Energy transactions in liberalized markets are subject to price and quantity uncertainty. This paper considers the spot price and energy generation to follow a bivariate semi-nonparametric distribution defined in terms of the Gram–Charlier expansion. This distribution allows us to jointly model not only mean, variance, and correlation but also skewness, kurtosis, and higher-order moments. Based on this model, we propose a static hedging strategy for electricity generators that participate in a competitive market where hedging is carried out through forward contracts that include a risk premium in their valuation. For this purpose, we use Monte Carlo simulation and consider information from the Colombian electricity market as the case study. The results show that the volume of energy to be sold under long-term contracts depends on each electricity generator and the risk assessment made by the market in the forward risk premium. The conditions of skewness, kurtosis, and correlation, as well as the type of the employed risk indicator, affect the hedging strategy that each electricity generator should implement. A positive correlation between the spot price and energy production tends to increase the hedge ratio; meanwhile, negative correlation tends to reduce it. The increase of forward risk premium, on the other hand, reduces the hedge ratio.

scholarly journals Analyzing Trade in Continuous Intra-Day Electricity Market: An Agent-Based Modeling Approach

Energies ◽  
2021 ◽  
Vol 14 (13) ◽  
pp. 3860
Author(s):  
Priyanka Shinde ◽  
Ioannis Boukas ◽  
David Radu ◽  
Miguel Manuel de Manuel de Villena ◽  
Mikael Amelin
Keyword(s):  
Renewable Energy ◽  
Electricity Market ◽  
Power Plants ◽  
Renewable Energy Sources ◽  
Thermal Power ◽  
Agent Based Modeling ◽  
Market Liquidity ◽  
Energy Sources ◽  
Modeling Framework ◽  
Agent Based

In recent years, the vast penetration of renewable energy sources has introduced a large degree of uncertainty into the power system, thus leading to increased trading activity in the continuous intra-day electricity market. In this paper, we propose an agent-based modeling framework to analyze the behavior and the interactions between renewable energy sources, consumers and thermal power plants in the European Continuous Intra-day (CID) market. Additionally, we propose a novel adaptive trading strategy that can be used by the agents that participate in CID market. The agents learn how to adapt their behavior according to the arrival of new information and how to react to changing market conditions by updating their willingness to trade. A comparative analysis was performed to study the behavior of agents when they adopt the proposed strategy as opposed to other benchmark strategies. The effects of unexpected outages and information asymmetry on the market evolution and the market liquidity were also investigated.

scholarly journals A Multivariate High-Order Markov Model for the Income Estimation of a Wind Farm

Energies ◽  
2021 ◽  
Vol 14 (2) ◽  
pp. 388
Author(s):  
Riccardo De Blasis ◽  
Giovanni Batista Masala ◽  
Filippo Petroni
Keyword(s):  
Markov Model ◽  
Electricity Market ◽  
Wind Farm ◽  
Central Italy ◽  
High Order ◽  
Distribution Model ◽  
Spot Price ◽  
Model Parameters ◽  
Price Series ◽  
Cross Correlations

The energy produced by a wind farm in a given location and its associated income depends both on the wind characteristics in that location—i.e., speed and direction—and the dynamics of the electricity spot price. Because of the evidence of cross-correlations between wind speed, direction and price series and their lagged series, we aim to assess the income of a hypothetical wind farm located in central Italy when all interactions are considered. To model these cross and auto-correlations efficiently, we apply a high-order multivariate Markov model which includes dependencies from each time series and from a certain level of past values. Besides this, we used the Raftery Mixture Transition Distribution model (MTD) to reduce the number of parameters to get a more parsimonious model. Using data from the MERRA-2 project and from the electricity market in Italy, we estimate the model parameters and validate them through a Monte Carlo simulation. The results show that the simulated income faithfully reproduces the empirical income and that the multivariate model also closely reproduces the cross-correlations between the variables. Therefore, the model can be used to predict the income generated by a wind farm.

scholarly journals Electricity Markets during the Liberalization: The Case of a European Union Country

Energies ◽  
2021 ◽  
Vol 14 (14) ◽  
pp. 4317
Author(s):  
Štefan Bojnec ◽  
Alan Križaj
Keyword(s):  
Electricity Markets ◽  
Electricity Market ◽  
Renewable Energy Sources ◽  
Primary Energy ◽  
Lessons Learned ◽  
Policy Implications ◽  
Daily Maximum ◽  
Energy Prices ◽  
Electricity Prices ◽  
Electricity Power

This paper analyzes electricity markets in Slovenia during the specific period of market deregulation and price liberalization. The drivers of electricity prices and electricity consumption are investigated. The Slovenian electricity markets are analyzed in relation with the European Energy Exchange (EEX) market. Associations between electricity prices on the one hand, and primary energy prices, variation in air temperature, daily maximum electricity power, and cross-border grid prices on the other hand, are analyzed separately for industrial and household consumers. Monthly data are used in a regression analysis during the period of Slovenia’s electricity market deregulation and price liberalization. Empirical results show that electricity prices achieved in the EEX market were significantly associated with primary energy prices. In Slovenia, the prices for daily maximum electricity power were significantly associated with electricity prices achieved on the EEX market. The increases in electricity prices for households, however, cannot be explained with developments in electricity prices on the EEX market. As the period analyzed is the stage of market deregulation and price liberalization, this can have important policy implications for the countries that still have regulated and monopolized electricity markets. Opening the electricity markets is expected to increase competition and reduce pressures for electricity price increases. However, the experiences and lessons learned among the countries following market deregulation and price liberalization are mixed. For industry, electricity prices affect cost competitiveness, while for households, electricity prices, through expenses, affect their welfare. A competitive and efficient electricity market should balance between suppliers’ and consumers’ market interests. With greening the energy markets and the development of the CO2 emission trading market, it is also important to encourage use of renewable energy sources.

scholarly journals The Concept of Multiple Impacts of Renewable Energy Sources: A Critical Review

Energies ◽  
2021 ◽  
Vol 14 (11) ◽  
pp. 3183
Author(s):  
Michaela Makešová ◽  
Michaela Valentová
Keyword(s):  
Renewable Energy ◽  
Energy Policy ◽  
Renewable Energy Sources ◽  
Energy Sources ◽  
The European Union ◽  
Multiple Impacts ◽  
Energy Field ◽  
Full Picture ◽  
The Difference ◽  
Social Environmental

Reaching climate neutrality by 2050 is one of the main long-term objectives of the European Union climate and energy policy, and renewable energy sources (RES) are integral parts of this transition. RES development results in many effects, direct and indirect, linked to each other, societal, local and individual, i.e., “multiple impacts of RES” (MI RES). These effects need to be carefully assessed and evaluated to obtain the full picture of energy field transformation and its context, and enable further development of RES. Nevertheless, the MI RES concept is often presented misleadingly and its scope varies throughout the literature. This paper provides a literature overview of the methodologies of this concept and presents a new concept of MI RES, respecting the difference between effects resulting from the implementation of RES and ultimate multiple impacts. We have summarized the effects into four groups: economic, social, environmental, and technical, which all lead to group of ultimate multiple impacts. Finally, we provide the complex overview of all MI RES and present the framework, which is used to analyze the multiple impacts and effects of RES and to show how the RES development leads and contributes to these impacts and effects. The concept is recommended to be considered in designing a robust energy policy by decision-makers.

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