Electricity Futures Prices in an Emissions Constrained Economy: Evidence From European Power Markets

The Energy Journal, vol. 36, no. 3, pp. 1-33, 2015

48 Pages Posted: 14 Sep 2019

See all articles by George Daskalakis

George Daskalakis

MBS College of Business and Entrepreneurship

Lazaros Symeonidis

Essex Business School, University of Essex

Raphael N. Markellos

University of East Anglia (UEA) - Norwich Business School

Date Written: July 1, 2015

Abstract

We investigate the economic factors that drive electricity risk premia in the European emissions constrained economy. Our analysis is undertaken for monthly baseload electricity futures for delivery in the Nordic, French and British power markets. We find that electricity risk premia are significantly related to the volatility of electricity spot prices, demand and revenues, and the price volatility of the carbon dioxide (CO2) futures traded under the EU Emissions Trading Scheme (EU ETS). This finding has significant implications for the pricing of electricity futures since it highlights for the first time the role of carbon market uncertainties as a main determinant of the relationship between spot and futures electricity prices in Europe. Our results also suggest that for the electricity futures under scrutiny prices are determined rationally by risk-averse economic agents.

Keywords: Electricity futures, emission allowances, risk premium, futures pricing

JEL Classification: G13, Q40

Suggested Citation

Daskalakis, George and Symeonidis, Lazaros and Markellos, Raphael N., Electricity Futures Prices in an Emissions Constrained Economy: Evidence From European Power Markets (July 1, 2015). The Energy Journal, vol. 36, no. 3, pp. 1-33, 2015, Available at SSRN: https://ssrn.com/abstract=3449041

George Daskalakis (Contact Author)

MBS College of Business and Entrepreneurship ( email )

Saudi Arabia

Lazaros Symeonidis

Essex Business School, University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Raphael N. Markellos

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

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