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Electricity Futures

In: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS

Author

Listed:
  • Paolo Falbo
  • Daniele Felletti
  • Silvana Stefani

Abstract

This chapter describes forwards and futures for electricity currently traded in Europe and other markets. Due to the non-storability of electricity, spot prices are highly dependent on local supply and demand conditions, business activity, and weather conditions. Seasonality is also very strong during the day (peak versus off-peak hours), during the week, and during cold and hot seasons. As a consequence, liquidity is low and the day-to-day volatility is much higher than in financial markets. Electricity futures and forwards may help generators, consumers, and marketers to manage volatility, but they also introduce risks of their own. The vast literature shows the elusive behavior of the so-called risk premia. We evaluate the ex post performance of monthly base load futures contracts on the Italian market in 2008–2013.We propose and test a linear approximation of the risk premium with respect to the time to maturity.

Suggested Citation

  • Paolo Falbo & Daniele Felletti & Silvana Stefani, 2015. "Electricity Futures," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 18, pages 545-565, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814566926_0018
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    Cited by:

    1. Bonaldo, Cinzia & Caporin, Massimiliano & Fontini, Fulvio, 2022. "The relationship between day-ahead and future prices in electricity markets: An empirical analysis on Italy, France, Germany, and Switzerland," Energy Economics, Elsevier, vol. 110(C).

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