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Pricing forward contracts in power markets with variable renewable energy sources

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  • Huisman, Ronald
  • Koolen, Derck
  • Stet, Cristian

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.

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  • Huisman, Ronald & Koolen, Derck & Stet, Cristian, 2021. "Pricing forward contracts in power markets with variable renewable energy sources," Renewable Energy, Elsevier, vol. 180(C), pages 1260-1265.
    • Handle: RePEc:eee:renene:v:180:y:2021:i:c:p:1260-1265
    DOI: 10.1016/j.renene.2021.08.086
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    Cited by:

    1. Mosquera-López, Stephania & Uribe, Jorge M., 2022. "Pricing the risk due to weather conditions in small variable renewable energy projects," Applied Energy, Elsevier, vol. 322(C).
    2. Lamnatou, Chr. & Cristofari, C. & Chemisana, D., 2024. "Renewable energy sources as a catalyst for energy transition: Technological innovations and an example of the energy transition in France," Renewable Energy, Elsevier, vol. 221(C).
    3. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Prices and Concentration: A U-shape? Theory and Evidence from Renewables," Papers 2407.03504, arXiv.org.
    4. Koolen, Derck & Huisman, Ronald & Ketter, Wolfgang, 2022. "Decision strategies in sequential power markets with renewable energy," Energy Policy, Elsevier, vol. 167(C).

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