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The Electricity Forward Premium: Renewable Energy Sources and Skewness Preferences

Author

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  • He, Dongchen
  • Huisman, Ronald
  • Willems, Bert

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

There is mixed empirical evidence on the premiums that explain electricity forward prices. We argue that the growth of electricity supplied by renewable energy sources and the preference for skewness may provide an explanation. We extend an existing equilibrium model by incorporating these features. The model predicts that the influence of spot price variance and skewness on forward prices is undetermined, reconciling mixed empirical findings. Moreover, we find additional premiums related to the covariance and coskewness of renewable supply and spot prices, that explain the forward premium. We provide empirical support using data from the German power market.

Suggested Citation

  • He, Dongchen & Huisman, Ronald & Willems, Bert, 2026. "The Electricity Forward Premium: Renewable Energy Sources and Skewness Preferences," LIDAM Discussion Papers CORE 2026010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2026010
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