TY - JOUR
T1 - Pricing forward contracts in power markets with variable renewable energy sources
AU - Huisman, Ronald
AU - Koolen, Derck
AU - Stet, Vasile Cristian
PY - 2021/12
Y1 - 2021/12
N2 - With the ongoing increase of variable renewable energy sources (VRES), such as wind or solar power, weather dependent production profiles induce uncertainty on the supply side and change operations at large in wholesale power markets. In this paper, we study how an increasing market share of VRES affects spot power price dynamics and the forward price premium. Using data from simulated power markets, we analyse the forward premium in three identical power markets with a varying market share of VRES supplied to the system. We demonstrate that markets with a high share of supply from VRES yield a significantly lower forward premium than markets with a low market share of wind or solar supply. Our results further confirm that, regardless of the market share of supply from VRES, forward power prices contain information about future spot power prices. These insights generate important implications for producers, retailers and other market participants exposed to wholesale price risk.
AB - With the ongoing increase of variable renewable energy sources (VRES), such as wind or solar power, weather dependent production profiles induce uncertainty on the supply side and change operations at large in wholesale power markets. In this paper, we study how an increasing market share of VRES affects spot power price dynamics and the forward price premium. Using data from simulated power markets, we analyse the forward premium in three identical power markets with a varying market share of VRES supplied to the system. We demonstrate that markets with a high share of supply from VRES yield a significantly lower forward premium than markets with a low market share of wind or solar supply. Our results further confirm that, regardless of the market share of supply from VRES, forward power prices contain information about future spot power prices. These insights generate important implications for producers, retailers and other market participants exposed to wholesale price risk.
UR - https://www.scopus.com/pages/publications/85114914690
U2 - 10.1016/j.renene.2021.08.086
DO - 10.1016/j.renene.2021.08.086
M3 - Article
SN - 0960-1481
VL - 180
SP - 1260
EP - 1265
JO - Renewable Energy
JF - Renewable Energy
ER -
