Drivers of Electricity Price Dynamics: Comparative Analysis of Spot and Futures Markets
Energy Policy (2018) 126: 76--87. DOI:10.1016/j.enpol.2018.11.020.
Posted: 30 May 2019
Date Written: 2018
Against the backdrop of numerous evidence that variable renewable generation decreases electricity prices and increases price volatility, this paper assesses the drivers of electricity prices in spot and futures markets, focusing on the German electricity markets. We take into account nonlinearities in electricity prices by means of structural breaks and threshold regressions. We find that short-run and medium/long-run price drivers differ and, more importantly, that they vary over time. In the case of the spot market, the determinants of prices are renewable infeed and electricity demand, while in the futures market the main drivers are natural gas, coal and carbon prices. Our results give relevant insights for market participants who seek to optimize procurement/selling strategies in the spot market, and use the futures market to hedge against spot price volatility, which has increased due to a higher renewable generation.
Keywords: Renewable Electricity; Spot and Futures Pricing; Merit-Order Effect; Structural Breaks; Threshold Regression
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