IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v45y2024i5p105-123.html
   My bibliography  Save this article

Renewable Energy and Equilibrium Hedging in Electricity Forward Markets

Author

Listed:
  • Sebastian Schwenen
  • Karsten Neuhoff

Abstract

We study the impact of renewable energy on forward markets for electricity. Previous literature shows that forward prices are determined by time-varying demand and volatile spot prices. We introduce supply risk from renewable generation and find that stochastic renewable output mitigates income risk for generating firms, in particular when negative shocks to renewable output have large positive price impact. This risk off-setting effect leads to reduced hedging needs for generating companies and increases the forward premium. Using five years of high-frequency spot and futures market data, we confirm our model empirically. In sum, our findings suggest that intermittent renewable generation changes firm’s hedging incentives and has significant impact on forward prices for electricity. JEL Classification: G11, G13, Q42

Suggested Citation

  • Sebastian Schwenen & Karsten Neuhoff, 2024. "Renewable Energy and Equilibrium Hedging in Electricity Forward Markets," The Energy Journal, , vol. 45(5), pages 105-123, September.
    • Handle: RePEc:sae:enejou:v:45:y:2024:i:5:p:105-123
    DOI: 10.1177/01956574241241878
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/01956574241241878
    Download Restriction: no
    File URL: https://libkey.io/10.1177/01956574241241878?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    risk mitigation; forward markets; electricity; renewable energy;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:45:y:2024:i:5:p:105-123. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.