Risk premiums in the German day-ahead Electricity Market
This paper conducts an empirical analysis of risk premiums in the German day-ahead Electricity Wholesale Market. We compare hourly price data of the European Energy Exchange (EEX) auction and of the continuous over-the-counter (OTC) market which takes place prior to the EEX auction. Data provided by the Energy Exchange Austria (EXAA) has been used as a snapshot of the OTC market two hours prior to the EEX auction. Ex post analysis found market participants are willing to pay both significant positive and negative premiums for hourly contracts. The largest positive premiums were paid for high demand evening peak hours on weekdays during winter months. By contrast, night hours on weekends featuring lowest demand levels display negative premiums. Additionally, ex ante analysis found a strong positive correlation between the expected tightness of the system and positive premiums. For this purpose, a tightness factor has been introduced that includes expectations of fundamental factors such as power plant availability, wind power production and demand. Hence, findings by Longstaff and Wang (2004) can be supported that power traders in liberalised markets behave like risk-averse rational economic agents.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Huisman, Ronald & Huurman, Christian & Mahieu, Ronald, 2007.
"Hourly electricity prices in day-ahead markets,"
Elsevier, vol. 29(2), pages 240-248, March.
- Huisman, R. & Huurman, C. & Mahieu, R.J., 2007. "Hourly Electricity Prices in Day-Ahead Markets," ERIM Report Series Research in Management ERS-2007-002-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Pirrong, Craig & Jermakyan, Martin, 2008. "The price of power: The valuation of power and weather derivatives," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2520-2529, December.
- Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
- Benth, Fred Espen & Cartea, Álvaro & Kiesel, Rüdiger, 2008.
"Pricing forward contracts in power markets by the certainty equivalence principle: Explaining the sign of the market risk premium,"
Journal of Banking & Finance,
Elsevier, vol. 32(10), pages 2006-2021, October.
- Fred Espen Benth & Alvaro Cartea & Ruediger Kiesel, 2006. "Pricing Forward Contracts in Power Markets by the Certainty Equivalence Principle: Explaining the Sign of the Market Risk Premium," Birkbeck Working Papers in Economics and Finance 0611, Birkbeck, Department of Economics, Mathematics & Statistics.
- Redl, Christian & Haas, Reinhard & Huber, Claus & Böhm, Bernhard, 2009. "Price formation in electricity forward markets and the relevance of systematic forecast errors," Energy Economics, Elsevier, vol. 31(3), pages 356-364, May.
- Francis A. Longstaff & Ashley W. Wang, 2004. "Electricity Forward Prices: A High-Frequency Empirical Analysis," Journal of Finance, American Finance Association, vol. 59(4), pages 1877-1900, 08.
- 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.
- Brunekreeft, Gert & Neuhoff, Karsten & Newbery, David, 2005.
"Electricity transmission: An overview of the current debate,"
Elsevier, vol. 13(2), pages 73-93, June.
- Brunekreeft, G. & Neuhoff, K. & Newbery, D., 2004. "Electricity transmission: an overview of the current debate," Cambridge Working Papers in Economics 0463, Faculty of Economics, University of Cambridge.
- Weron, R & Bierbrauer, M & Trück, S, 2004.
"Modeling electricity prices: jump diffusion and regime switching,"
Physica A: Statistical Mechanics and its Applications,
Elsevier, vol. 336(1), pages 39-48.
- Rafal Weron & Michael Bierbrauer & Stefan Trück, 2003. "Modeling electricity prices: jump diffusion and regime switching," HSC Research Reports HSC/03/01, Hugo Steinhaus Center, Wroclaw University of Technology.
- Wissen, Ralf & Nicolosi, Marco, 2007. "Anmerkungen zur aktuellen Diskussion zum Merit-Order Effekt der erneuerbaren Energien," EWI Working Papers 2007-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
- Smith, Clifford W. & Stulz, René M., 1985. "The Determinants of Firms' Hedging Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 391-405, December.
- Douglas, Stratford & Popova, Julia, 2008.
"Storage and the electricity forward premium,"
Elsevier, vol. 30(4), pages 1712-1727, July.
- Bryan R. Routledge & Duane J. Seppi & Chester S. Spatt, 2000.
"Equilibrium Forward Curves for Commodities,"
Journal of Finance,
American Finance Association, vol. 55(3), pages 1297-1338, 06.
- Bryan Routledge & Duane Seppi & Chester Spatt, "undated". "Equilibrium Forward Curves for Commodities," GSIA Working Papers 1997-50, Carnegie Mellon University, Tepper School of Business.
- Bryan Routledge & Duane Seppi & Chester Spatt, "undated". "Equilibrium Forward Curves for Commodities," GSIA Working Papers 1997-49, Carnegie Mellon University, Tepper School of Business.
- Weigt, Hannes & Hirschhausen, Christian von, 2008.
"Price formation and market power in the German wholesale electricity market in 2006,"
Elsevier, vol. 36(11), pages 4227-4234, November.
- Weigt, Hannes & von Hirschhausen, Christian, 2007. "Price Formation and Market Power in the German Wholesale Electricity Market in 2006," MPRA Paper 65662, University Library of Munich, Germany.
- Daskalakis, George & Markellos, Raphael N., 2009. "Are electricity risk premia affected by emission allowance prices? Evidence from the EEX, Nord Pool and Powernext," Energy Policy, Elsevier, vol. 37(7), pages 2594-2604, July.
- 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.
- Botterud, Audun & Kristiansen, Tarjei & Ilic, Marija D., 2010. "The relationship between spot and futures prices in the Nord Pool electricity market," Energy Economics, Elsevier, vol. 32(5), pages 967-978, September.
- Hipòlit Torró & Julio Lucia, 2008. "Short-term electricity futures prices: Evidence on the time-varying risk premium," Working Papers. Serie EC 2008-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Bierbrauer, Michael & Menn, Christian & Rachev, Svetlozar T. & Truck, Stefan, 2007. "Spot and derivative pricing in the EEX power market," Journal of Banking & Finance, Elsevier, vol. 31(11), pages 3462-3485, November.
- Lise, Wietze & Hobbs, Benjamin F. & Hers, Sebastiaan, 2008. "Market power in the European electricity market--The impacts of dry weather and additional transmission capacity," Energy Policy, Elsevier, vol. 36(4), pages 1331-1343, April.
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:39:y:2011:i:1:p:386-394. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.