Electricity futures prices in an emissions constraint economy:Evidence from European power markets

Daskalakis, George ORCID: https://orcid.org/0000-0003-4421-7167, Symeonidis, Lazaros and Markellos, Raphael (2015) Electricity futures prices in an emissions constraint economy:Evidence from European power markets. The Energy Journal, 36 (3). pp. 1-33. ISSN 1944-9089

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Abstract

We investigate the economic factors that drive electricity risk premia in the European emissions constrained economy. Our analysis is undertaken for monthly baseload electricity futures for delivery in the Nordic, French and British power markets. We find that electricity risk premia are significantly related to the volatility of electricity spot prices, demand and revenues, and the price volatility of the carbon dioxide (CO2) futures traded under the EU Emissions Trading Scheme (EU ETS). This finding has significant implications for the pricing of electricity futures since it highlights for the first time the role of carbon market uncertainties as a main determinant of the relationship between spot and futures electricity prices in Europe. Our results also suggest that for the electricity markets under scrutiny futures prices are determined rationally by risk-averse economic agents.

Item Type: Article
Uncontrolled Keywords: electricity futures,emission allowances,risk premium,futures pricing
Faculty \ School: Faculty of Social Sciences > Norwich Business School
UEA Research Groups: Faculty of Social Sciences > Research Groups > Accounting, Finance and Governance (former - to 2017)
Faculty of Social Sciences > Research Groups > Finance Group
Faculty of Social Sciences > Research Centres > Centre for Competition Policy
Related URLs:
Depositing User: Pure Connector
Date Deposited: 10 Jul 2014 13:42
Last Modified: 19 Apr 2023 00:14
URI: https://ueaeprints.uea.ac.uk/id/eprint/49300
DOI: 10.5547/01956574.36.3.1

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