On the risk premium in Nordic electricity futures prices |
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| Authors: | Julio J. Lucia Hipòlit Torró |
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| Affiliation: | 1. School of Industrial Engineering, Logistics and Production Research Group, Universidad del Valle, Calle 13 # 100-00, Cali, Colombia;2. Ecole Polytechnique Fédérale de Lausanne, Station 5, CH-1015 Lausanne, Switzerland;1. Department of Economics, University of California, San Diego, United States;2. Booth School of Business, University of Chicago, United States;1. Department of Business and Law Studies, University of Bari, Largo Abbazia Santa Scolastica 53, 70124 Bari, Italy;2. Department of Economics, University of Foggia, Italy;1. China University of Petroleum-Beijing, Changping, Beijing 102249, China;2. IFP Energies Nouvelles, IFP School, 228-232 Avenue Napoleon Bonaparte, F-92852 Rueil-Malmaison, France |
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| Abstract: | ![]()
This paper examines empirically the relationship between electricity spot and futures prices, by analysing a decade of data for a set of short term-to-maturity futures contracts traded in the Nordic Power Exchange. It is found that, on average, there are significant positive risk premiums in short-term electricity futures prices. The significance and size of the premiums, however, varies seasonally over the year; whereas it is greatest during winter, it is zero in summer. It is also found that time-varying risk premiums are significantly related to unexpectedly low reservoir levels. Furthermore, before the unprecedented supply-shock that hit the market around the end of year 2002, the risk premiums were related to the variance and the skewness of future spot prices. |
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