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Hedging Ineffectiveness And Forward Market Underdevelopment In The Romanian Electricity Market, 2019–2025

Author

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  • PITEȘ, Călin-Andrei

    (Bucharest University of Economic Studies, Romania)

Abstract

The Romanian electricity market exhibits substantial spot-price volatility yet operates with an underdeveloped centralised forward market. This paper provides an ex-post empirical assessment of unmet hedging demand and operational deterioration in the OPCOM Centralised Market of Bilateral Non-standardised Contracts (PCCB-NC) over 2019–2025. Using monthly OPCOM data, EEX volume reports, and Eurostat consumption statistics, the analysis combines the Ederington (1979) hedge-effectiveness framework, a cross-market benchmark against standardised regional forward contracts, and a scenario-based estimate of unmet hedging demand. The hedge effectiveness of PCCB-NC deteriorates sharply across sub-periods, with the spot-forward R² collapsing by roughly an order of magnitude between the energy crisis and the post-crisis period, while spot-price volatility remained elevated. Romanian forward-market intensity is found to be one to two orders of magnitude below standardised regional benchmarks, which recovered after the crisis, whereas the Romanian platform did not. The unmet hedging demand on operational short-term forward instruments is estimated in the order of several TWh per year in 2024, well in excess of the volume actually traded, even after adjusting for parallel long-term bilateral coverage. The findings support reassessing Romania’s electricity hedging infrastructure and evaluating standardised, centrally cleared derivatives as a potential market-design response.

Suggested Citation

  • PITEȘ, Călin-Andrei, 2026. "Hedging Ineffectiveness And Forward Market Underdevelopment In The Romanian Electricity Market, 2019–2025," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 30(2), pages 108-128, June.
    • Handle: RePEc:vls:finstu:v:30:y:2026:i:2:p:108-128
    DOI: https://doi.org/10.65672/fs.2026.2.5
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    References listed on IDEAS

    as
    1. Algieri, Bernardina & Leccadito, Arturo & Tunaru, Diana, 2021. "Risk premia in electricity derivatives markets," Energy Economics, Elsevier, vol. 100(C).
    2. Boroumand, Raphaël Homayoun & Goutte, Stéphane & Porcher, Simon & Porcher, Thomas, 2015. "Hedging strategies in energy markets: The case of electricity retailers," Energy Economics, Elsevier, vol. 51(C), pages 503-509.
    3. Boroumand, Raphaël Homayoun & Goutte, Stéphane & Porcher, Simon & Porcher, Thomas, 2015. "Hedging strategies in energy markets: The case of electricity retailers," Energy Economics, Elsevier, vol. 51(C), pages 503-509.
    4. 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, June.
    5. Ederington, Louis H, 1979. "The Hedging Performance of the New Futures Markets," Journal of Finance, American Finance Association, vol. 34(1), pages 157-170, March.
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    Keywords

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    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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