The relationship between day-ahead and futures prices in the electricity markets: an empirical analysis on Italy, France, Germany and Switzerland

Cinzia Bonaldo, Massimiliano Caporin and Fulvio Fontini
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Cinzia Bonaldo: Department of Economics and Management and Department of Civil Environmental and Architectural Engineering, University of Padua, Italy

No 272, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We evaluate the relationship between electricity day-ahead and future prices following the hedging pressure theory, which explains the difference between future prices and expected spot prices in terms of market players’ risk aversion. We calculate the sign and intensity of the risk premia ex-post in the electricity market of Italy, France, Switzerland and Germany during the last decade and for all products traded, namely, monthly, quarterly, yearly futures and distinguishing between base-load and peak-price futures. We show that in all the countries there is no convergence of future prices to the underlying day ahead ones; moreover, for most of future contracts, the premium rises as contracts approach the delivery. For Italy and Switzerland this means that an inversion of the sing occurs, since on average risk premia are negative at the beginning of the trading period but become positive as the delivery period approaches. The hedging pressure theory implies that in these Countries premia are on average paid by power producers at the beginning of the period and by suppliers (i.e. power buyers) when coming close to the delivery. On the contrary, in France and Germany risk premia are both positive at the begging and at the end of the trading period, signaling that on average buyers are relatively more risk averse during the whole trading period. In addition, when considering the duration of the delivery period, contracts with longer delivery periods have, on average, higher negative risk premia.

Keywords: electricity; prices; futures; spot; risk premium (search for similar items in EconPapers)
JEL-codes: D46 G12 G13 L94 Q41 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2021-03
New Economics Papers: this item is included in nep-ene and nep-isf
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Journal Article: The relationship between day-ahead and future prices in electricity markets: An empirical analysis on Italy, France, Germany, and Switzerland (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0272

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