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The Technology Link Between Short-term and Long-term Electricity Markets: The Case of Spain

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Abstract

Economic intuition suggests that day-ahead and long-term electricity markets complement each other through price signals to ensure the efficiency of the markets. However, while important for market and policy design, there is little empirical research on the links between these markets. We investigate the effect of long-term contracts in different generation technologies on price formation and volatility in the short-term market in the case of Spain between 2019 and 2024. The findings indicate that: (i) the energy traded in the forward market reduced (on average) the spot prices, (ii) hedging wind and photovoltaic production in the long-term market increased the day-ahead prices and their volatility, and (iii) displacing hydropower from the day-ahead to forward market reduced the day-ahead prices. We then provide recommendations to improve market design and operation.

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  • Davi-Arderius, Daniel & Jamasb, Tooraj, 2025. "The Technology Link Between Short-term and Long-term Electricity Markets: The Case of Spain," Working Papers 1-2025, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2025_001
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    More about this item

    Keywords

    Market design; Energy markets; Forward markets; Technologies; Affordability; Sustainability; Volatility;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D30 - Microeconomics - - Distribution - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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