An Analysis of the Main Determinants of Electricity Forward Prices and Forward Risk Premia

  • Álvaro Cartea
  • Pablo Villaplana


The liberalisation of energy markets entails the appearance of market risks which must be borne by market participants: producers, retailers and final consumers. Some of these risks can be managed by participating in the forward markets and transferring it to other agents who are willing to bear it and command a compensation for it. Thus, forward prices are made up of two components: the expected spot price at a future date and the forward risk premium. In this chapter we analyse the factors influencing the evolution of electricity forward prices in Spain. These factors include the forward prices for natural gas and CO2 emission rights, as well as the electricity forward prices in Germany and in France and spot prices in Spain. We also analyse the behaviour of the ex-post electricity forward risk premia in Germany, France and Spain, and in particular we find a positive correlation between ex-post electricity risk premia in these three countries as well as between risk premia for electricity and natural gas futures prices.


Risk Premium Future Price Future Contract Spot Price Spot Prex 
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Villaplana acknowledges financial support from Consejería de Educación y Ciencia, Junta de Comunidades de Castilla-La Mancha, Ref. PPII11-0290-0305, project: “Valoración de activos derivados y gestión de riesgos en mercados financieros y energéticos”. The contents of this document are the sole responsibility of the authors and do not necessarily represent the views of the Comisión Nacional de Energía. We would like to thank Carlos González-Pedraz, Rüdiger Kiesel and Fred Espen Benth for comments.


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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of MathematicsUniversity College LondonLondonUK
  2. 2.Energy Derivatives Markets Department at Comisión Nacional de EnergíaMadridSpain

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