Analyzing the Dynamic Impact of Electricity Futures on Revenue and Risk of Renewable Energy in China

Yue Zhang and Arash Farnoosh
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Yue Zhang: China University of Petroleum
Arash Farnoosh: IFPEN - IFP Energies nouvelles

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Abstract: Though the electricity market in China has gone through several reforms in the last few decades, the market is still not completely liberalized. The wholesale prices are regulated and for renewable it is based on feed-in tariff; there is not yet a competitive spot or derivative market concerning the generation side. Furthermore, with great potential, renewable energy is being gradually promoted by the government to compete freely with conventional energies. However, it is hard for a renewable generator to survive without subsidy. So, in this paper we propose a new round of revolution in power sector to introduce electricity futures into China with the expectation of perfecting the market and providing a proper hedging tool for renewable plants. We make an estimation of the risk premium and then simulate the futures prices in China's market. To support the establishment of the futures contracts, we also propose two pricing mechanisms: Demand-side price & Opportunity cost price and study their effects on the futures. Finally, some suggestions with regard to the construction of futures market in China and the operational strategy for renewable plants are given.

Keywords: Spot Prices; Electricity Market; Futures Prices; Hedging Strategy (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-ene and nep-tra
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Citations: View citations in EconPapers (6)

Published in Energy Policy, 2019, 132, pp.678-690. ⟨10.1016/j.enpol.2019.06.011⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02264847

DOI: 10.1016/j.enpol.2019.06.011

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