Faithin Omaha eBook Collection

Download or read book Equilibrium Forward Premium and Optima Hedging in Electricity Markets with Green and Brown Producers written by Shashan Yuana and published by . This book was released on 2019 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.