Market Power and Forward Prices

Ruddell, Keith; Philpott, Andy; Downward, Tony

doi:10.2139/ssrn.3072432

Cited by 3 publications

(4 citation statements)

References 7 publications

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“…For this reason, the models for pricing electricity forward contracts depend on expectations about the future performance of the spot price and the risk levels assumed by market agents due to variations in demand, the occurrence of climate phenomena, risks inherent to primary fuels, reservoir levels mainly for hydraulic systems, or even market power. The assessment of these assumed risk levels is reflected in the price of the traded contracts as demonstrated by Longstaff and Wang (2004); Botterud, Kristiansen, and Ilic (2010); Pantoja (2012); Redl and Bunn (2013); Bunn and Chen (2013); Xiao, Colwell, and Ramaprasad (2014); Ruddell, Downward, and Philpott (2018), who studied the FRP in electricity markets.…”

Section: Forward Pricementioning

confidence: 99%

“…Therefore, market agents set the forward price based on their expectations and the risks they assume, which gives rise to the Forward Risk Premium (FRP). This risk premium − defined as the discrepancy between the spot price and the forward price − has been studied and explained by Longstaff and Wang (2004); and Xiao, Colwell, and Ramaprasad (2014) for the Pennsylvania-New Jersey-Maryland (PJM) electricity market; Botterud, Kristiansen, and Ilic (2010) for the Nord Pool; Pantoja (2012) for the Colombian electricity market; Redl and Bunn (2013) for the European Electricity Exchange (EEX); and Bunn and Chen (2013) for the British electricity market (Ruddell, Downward, & Philpott, 2018). The incorporation of a FRP immediately leads to a difference between the forward price and the spot price expectations.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Modeling Electricity Price and Quantity Uncertainty: An Application for Hedging With Forward Contracts

2020

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Energy purchases/sales in liberalized markets are subject to price and quantity uncertainty, which should be jointly modeled by relaxing the unreliable normality assumption for capturing risk. In this paper, we consider the spot price and energy generation to follow a bivariate semi-nonparametric distribution defined in terms of the Gram-Charlier expansion. This distribution allows to jointly model not only mean, variance, and correlation, but also skewness, kurtosis, and higher-order moments. Based on this model, we propose a static hedging strategy for electricity generators that participate in a competitive market where hedging is carried out through forward contracts that include a risk premium in their valuation. For this purpose, we use Monte Carlo simulation and consider information from the Colombian electricity market as the case study. The results show that the volume of energy to be sold under long-term contracts depends on each electricity generator and the risk assessment made by the market in the Forward Risk Premium. The conditions of skewness, kurtosis, and correlation, as well as the type of risk indicator to be employed, affect the hedging strategy that each electricity generator should implement.

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Section: Forward Pricementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Modeling Electricity Price and Quantity Uncertainty: An Application for Hedging With Forward Contracts

2020

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“…But it is not self-evident that better matching will increase or decrease contracting of consumers. Large LSEs would have significant buyer power, and this could stimulate contracting and reduce mark-ups in the spot market, as shown by Anderson and Hu (2008) and Ruddell et al (2018). On the other hand, retailers typically have thin margins, which make them risk averse and keen to hedge (Powell, 1993).…”

Section: Contracting In Centralized and Decentralized Marketsmentioning

confidence: 99%

Central- versus Self-Dispatch in Electricity Markets

2018

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“…The forward market refers to the market in which forward contracts are traded, and transactions are settled on a certain date in the future. The content of forward contract is usually the stakeholders agree to buy or sell a certain quantity of electricity at a certain price in the future [1]. So forward market plays a vital role in avoiding the price risk of electricity and detecting the demand in advance and was established in many countries.…”

Section: Introductionmentioning

confidence: 99%

Probabilistic evaluation of renewable energy curtailment under forward electricity market

Jiang

Qiao

et al. 2020

E3S Web Conf.

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Forward electricity market has emerged as a pivotal section for the electricity transaction to keep stakeholders away from price risk and electricity shortage. But the forward contract of conventional unit partially limits the unit output before operation, leading to the curtailed generation share of renewable energy source (RES). Modeling and assessing this impact is of great significance for system planning and market supervision. The central thesis of this paper is to find out the impact of forward market on RES curtailment. A probabilistic evaluation model for RES accommodation is proposed, taking the curtailment rate as a main evaluation index. We mainly research financial contract and physical contract, modeling the impact of them on thermal unit minimum load capacity and power load in evaluation model. The simulation is conducted in a simplified system, which reveals the change of RES curtailment with renege penalty, contract price and execution generation curve.

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Market Power and Forward Prices

Cited by 3 publications

References 7 publications

Modeling Electricity Price and Quantity Uncertainty: An Application for Hedging With Forward Contracts

Modeling Electricity Price and Quantity Uncertainty: An Application for Hedging With Forward Contracts

Central- versus Self-Dispatch in Electricity Markets

Probabilistic evaluation of renewable energy curtailment under forward electricity market

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