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Long-term seasonal forwards in electricity generation markets: an application to Colombia

Jesús M. López-Lezama (), David Tobón-Orozco (), Esteban Velilla, Jorge Barrientos and Fernando Villada
Authors registered in the RePEc Author Service: David Tobón Orozco

Revista Cuadernos de Economía, 2018, vol. 37, issue 74, 287-314

Abstract: Seasonal components have been found in the price of most commodities, where pices are largely determined by the anticipation of seasonal demand and/or supply. This paper presents a methodology to determine seasonal forward prices in the electricity generation markets. A Cournot competition to characterize this market is assumed. Forward prices are calculated in accordance with the demand elasticity of the forwards and spot price through a differential or “gap” that represents the risk premium for the current forwards, plus some non-observable heterogeneities. The distribution of the given quantities in seasonal contracts is carried out through the classic portfolio theory. This methodology is applied to the Colombian case, and shows that it will be more profitable for generators to sell the proposed seasonal hydric forwards. Los componentes estacionales se encuentran en los precios de la mayoría de los commodities, en los cuales los precios se determinan, en gran medida, por la anticipación de la estacionalidad en la oferta y la demanda. Este artículo presenta a metodología para determinar precios estacionales en forwards en mercados de generación de electricidad. Un juego de Cournot se considera para caracterizar este mercado. Los precios forward se construyen de acuerdo con la elasticidad de la demanda a los forward y el precio spot por medio de un diferencial que representa el premio por riesgo en los forward actuales más una heterogeneidad no observable. La distribución de estas cantidades en contratos estacionales se realiza mediante la teoría clásica de portafolio. Esta metodología se aplica al caso colombiano, mostrando que es más rentable para los generadores vender los forward hídricos estacionales propuestos.

Keywords: Electricity markets; seasonal forwards; Cournot equilibrium; portfoliotheory; game theory (search for similar items in EconPapers)
JEL-codes: D43 D61 L13 L43 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:col:000093:016994

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