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Explaining Electricity Forward Premiums - Evidence for the Weather Uncertainty Effect

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  • Obermüller, Frank

    () (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

Abstract

With the increasing share of volatile renewable energies, weather prediction becomes more important to electricity markets. The weather-driven uncertainty of renewable forecast errors could have price increasing impacts. This research sets up an analytic model to show that the day-ahead optimal bidding under uncertain renewable production is below the expected production and thus price increasing. In a second step, the price increasing effect on forward premiums by specific weather types and their renewable production uncertainty is proved via empirical methods. Weather types are identified in which renewable production is harder to predict. The findings connect weather dependent renewable forecast uncertainty to forward premiums and support the consideration of weather types in price forecasting models.

Suggested Citation

  • Obermüller, Frank, 2017. "Explaining Electricity Forward Premiums - Evidence for the Weather Uncertainty Effect," EWI Working Papers 2017-10, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  • Handle: RePEc:ris:ewikln:2017_010
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Forward Premium; Weather Type; Uncertainty; Volatile Renewable Production;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • P18 - Economic Systems - - Capitalist Systems - - - Energy; Environment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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