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A comment on: Storage and the electricity forward premium

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  • Bloys van Treslong, Adriaan
  • Huisman, Ronald
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    Abstract

    This paper examines the robustness of the results found by Douglas and Popova (2008). They examine the electricity forward premium in relation to gas storage inventories and find that, although electricity is not directly storable, electricity forward premiums are lower when gas storage inventories are higher, especially on days with high temperatures. Douglas and Popova (2008) derive their results from a forward premium model that is an extension of the Bessembinder and Lemmon (2002) model. We examine whether the gas storage inventory results hold under a different specification of the forward risk premium. Our results support the results found by Douglas and Popova (2008) and show that their results are not influenced by the specification of the forward premium model.

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    File URL: http://www.sciencedirect.com/science/article/B6V7G-4XSVRB4-2/2/43eeb27827999e1725ffe5813c15aef9
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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 32 (2010)
    Issue (Month): 2 (March)
    Pages: 321-324

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    Handle: RePEc:eee:eneeco:v:32:y:2010:i:2:p:321-324

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    Web page: http://www.elsevier.com/locate/eneco

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    1. Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, vol. 60(1), pages 55-73, January.
    2. Douglas, Stratford & Popova, Julia, 2008. "Storage and the electricity forward premium," Energy Economics, Elsevier, vol. 30(4), pages 1712-1727, July.
    3. Hendrik Bessembinder & Michael L. Lemmon, 2002. "Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets," Journal of Finance, American Finance Association, vol. 57(3), pages 1347-1382, 06.
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    Cited by:
    1. Huisman, Ronald & Kilic, Mehtap, 2012. "Electricity Futures Prices: Indirect Storability, Expectations, and Risk Premiums," Energy Economics, Elsevier, vol. 34(4), pages 892-898.
    2. Mehtap Kilic & Ronald Huisman, 2010. "Is Power Production Flexibility a Substitute for Storability? Evidence from Electricity Futures Prices," Tinbergen Institute Discussion Papers 10-070/2, Tinbergen Institute.

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