Published in:
Publication year: 2005
Co-author 1: Derek W. Bunn
Analyses of electricity market prices have presented contradictory perspectives on the sign and economic properties of the day-ahead forward premia. By classifying halfhourly trading periods into two homogenous clusters, peak and off-peak, we uncover a systematic diurnal reversal in the sign of forward premium in the British market. This can be explained by the asymmetric positions of generators and suppliers towards risk and its intra-day variation, which is induced both by the intra-day heterogeneity of plant technical characteristics as well as aspects of market design. The sign reversal substantially explains controversial findings in previous research. The analysis is extended to explore the time-varying responses of forward premium to economic, strategic and risk variables. Subsequently, ex-ante forward premia are derived based on spot price predictions and assumptions on agent learning. This procedure allows the derivation of predictive intervals for price risk.
Analyses of electricity market prices have presented contradictory perspectives on the sign and economic properties of the day-ahead forward premia. By classifying halfhourly trading periods into two homogenous clusters, peak and off-peak, we uncover a systematic diurnal reversal in the sign of forward premium in the British market. This can be explained by the asymmetric positions of generators and suppliers towards risk and its intra-day variation, which is induced both by the intra-day heterogeneity of plant technical characteristics as well as aspects of market design. The sign reversal substantially explains controversial findings in previous research. The analysis is extended to explore the time-varying responses of forward premium to economic, strategic and risk variables. Subsequently, ex-ante forward premia are derived based on spot price predictions and assumptions on agent learning. This procedure allows the derivation of predictive intervals for price risk.