Pricing forward contracts in power markets with variable renewable energy sources
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Date
2021
Authors
Huisman, Ronald
Koolen, Derck
Stet, Cristian
Journal Title
Journal ISSN
Volume Title
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Abstract
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.
Description
Keywords
Forward premium, Power markets, Variable production, Variable renewable energy, article
Citation
Huisman R. Pricing forward contracts in power markets with variable renewable energy sources / Huisman R., Koolen D., Stet S. // Renewable Energy. - 2021. - Vol. 180. - P. 1260-1265. - https://doi.org/10.1016/j.renene.2021.08.086