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Load-Following Forward Contracts

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Listed:
  • David P. Brown
  • David E. M. Sappington

Abstract

Suppliers and large buyers of electricity often sign load-following forward contracts (LFFCs). A LFFC obligates an electricity supplier to deliver at a pre-specified unit price a fraction of the buyer’s ultimate demand for electricity. We show that relative to more standard (“swap†) forward contracts, LFFCs can reduce the variation in the wholesale price of electricity. However, LFFCs also can increase the expected wholesale price and thereby reduce expected consumer surplus and total surplus.

Suggested Citation

  • David P. Brown & David E. M. Sappington, 2023. "Load-Following Forward Contracts," The Energy Journal, , vol. 44(3), pages 187-222, May.
    • Handle: RePEc:sae:enejou:v:44:y:2023:i:3:p:187-222
    DOI: 10.5547/01956574.44.2.dbro
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    More about this item

    Keywords

    Load-following forward contracts; Swap contracts; Electricity sector;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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