IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v42y2021i4p43-68.html
   My bibliography  Save this article

Renewable Energy Technologies and Electricity Forward Market Risks

Author

Listed:
  • Derek Koolen
  • Derek Bunn
  • Wolfgang Ketter

Abstract

We analyse how the introduction of the same renewable energy technology at different parts of the electricity supply chain has different price formation effects on wholesale power markets. We develop a multi-stage competitive equilibrium model to evaluate the effects on short-term price formation of a technology shift from conventional to both large-scale renewable energy production (e.g. wind and solar farms) and distributed renewable energy sources (e.g. rooftop solar). We find that wind and solar technologies oppositely affect the forward risk premium, and this is related to technology-varying, risk-related hedging pressures of producers and retailers. We form a multi-factor propositional framework and empirically validate the model by analyzing data from California and Britain; two markets which recently experienced significant increases of renewable power, in terms of utility scale and distributed sources. The work is innovative in showing theoretically and empirically how different types of renewable technologies influence market price formation differently. This has implications for market participants facing wholesale price risks, as well as regulators and policy-makers.

Suggested Citation

  • Derek Koolen & Derek Bunn & Wolfgang Ketter, 2021. "Renewable Energy Technologies and Electricity Forward Market Risks," The Energy Journal, , vol. 42(4), pages 43-68, July.
    • Handle: RePEc:sae:enejou:v:42:y:2021:i:4:p:43-68
    DOI: 10.5547/01956574.42.4.dkoo
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.42.4.dkoo
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.42.4.dkoo?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Severin Borenstein & James Bushnell & Christopher R. Knittel & Catherine Wolfram, 2008. "Inefficiencies And Market Power In Financial Arbitrage: A Study Of California'S Electricity Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 347-378, June.
    2. Neuhoff, Karsten & Wolter, Sophia & Schwenen, Sebastian, 2016. "Power markets with Renewables: New perspectives for the European Target Model," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 37, pages 3-38.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmed, Faraedoon & Foley, Aoife & Dowds, Carole & Johnston, Barry & Al Kez, Dlzar, 2024. "Assessing the engineering, environmental and economic aspects of repowering onshore wind energy," Energy, Elsevier, vol. 301(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pietz, Matthäus, 2009. "Risk premia in electricity wholesale spot markets: empirical evidence from Germany," CEFS Working Paper Series 2009-11, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    2. Lazarczyk, Ewa, 2013. "Market Specific News and Its Impact on Electricity Prices – Forward Premia," Working Paper Series 953, Research Institute of Industrial Economics, revised 20 Aug 2013.
    3. Joel Gilmore & Tahlia Nolan & Paul Simshauser, 2022. "The Levelised Cost of Frequency Control Ancillary Services in Australia’s National Electricity Market," Working Papers EPRG2202, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    4. Westgaard, Sjur & Fleten, Stein-Erik & Negash, Ahlmahz & Botterud, Audun & Bogaard, Katinka & Verling, Trude Haugsvaer, 2021. "Performing price scenario analysis and stress testing using quantile regression: A case study of the Californian electricity market," Energy, Elsevier, vol. 214(C).
    5. Karsten Neuhoff & Jörn C. Richstein & Mats Kröger, 2023. "Reacting to Changing Paradigms: How and Why to Reform Electricity Markets," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 127, number pbk189, April.
    6. Paul Simshauser & Farhad Billimoria & Craig Rogers, 2021. "Optimising VRE plant capacity in Renewable Energy Zones," Working Papers EPRG2121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    7. Dressler, Luisa, 2016. "Support schemes for renewable electricity in the European Union: Producer strategies and competition," Energy Economics, Elsevier, vol. 60(C), pages 186-196.
    8. Chiappinelli, Olga & May, Nils, 2022. "Too good to be true? Time-inconsistent renewable energy policies," Energy Economics, Elsevier, vol. 112(C).
    9. Finn Roar Aune and Rolf Golombek, 2021. "Are Carbon Prices Redundant in the 2030 EU Climate and Energy Policy Package?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 225-264.
    10. Koichiro Ito & Mar Reguant, 2016. "Sequential Markets, Market Power, and Arbitrage," American Economic Review, American Economic Association, vol. 106(7), pages 1921-1957, July.
    11. Peña, Juan Ignacio & Rodriguez, Rosa, 2016. "Time-zero efficiency of European power derivatives markets," Energy Policy, Elsevier, vol. 95(C), pages 253-268.
    12. Simshauser, Paul, 2019. "Missing money, missing policy and Resource Adequacy in Australia's National Electricity Market," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    13. Holladay, J. Scott & Price, Michael K. & Wanamaker, Marianne, 2015. "The perverse impact of calling for energy conservation," Journal of Economic Behavior & Organization, Elsevier, vol. 110(C), pages 1-18.
    14. Simshauser, Paul, 2021. "Renewable Energy Zones in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 101(C).
    15. Sebastian Schwenen & Karsten Neuhoff, 2024. "Renewable Energy and Equilibrium Hedging in Electricity Forward Markets," The Energy Journal, , vol. 45(5), pages 105-123, September.
    16. Hamid Baghestani & Jorg Bley, 2020. "Do directional predictions of US gasoline prices reveal asymmetries?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(2), pages 348-360, April.
    17. Chiara Lo Prete & William W. Hogan & Bingyuan Liu & Jia Wang, 2019. "Cross-product Manipulation in Electricity Markets, Microstructure Models and Asymmetric Information," The Energy Journal, , vol. 40(5), pages 221-246, September.
    18. Hopkins, Caroline A., 2020. "Convergence bids and market manipulation in the California electricity market," Energy Economics, Elsevier, vol. 89(C).
    19. Jerry Anunrojwong & Santiago R. Balseiro & Omar Besbes & Bolun Xu, 2024. "Battery Operations in Electricity Markets: Strategic Behavior and Distortions," Papers 2406.18685, arXiv.org.
    20. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:42:y:2021:i:4:p:43-68. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.