Determinants of power spreads in electricity futures markets: A multinational analysis

Arbeitspapier

The growth in variable renewable energy (vRES) and the need for flexibility in power systems go hand in hand. We study how vRES and other factors, namely the price of substitute fuels, power price volatility, structural breaks, and seasonality impact the hedgeable power spreads (profit margins) of the main dispatchable flexibility providers in the current power systems - gas and coal power plants. We particularly focus on power spreads that are hedgeable in futures markets in three European electricity markets (Germany, UK, Nordic) over the time period 2009-2016. We find that market participants who use power spreads need to pay attention to the fundamental supply and demand changes in the underlying markets (electricity, CO2, and coal/gas). Specifically, we show that the total vRES capacity installed during 2009-2016 is associated with a drop of 3-22% in hedgeable profit margins of coal and especially gas power generators. While this shows that the expansion of vRES has a significant negative effect on the hedgeable profitability of dispatchable, flexible power generators, it also suggests that the overall decline in power spreads is further driven by the price dynamics in the CO2 and fuel markets during the sample period. We also find significant persistence (and asymmetric effects) in the power spreads volatility using a univariate TGARCH model.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ESRI Working Paper ; No. 580

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Renewable Resources and Conservation: Demand and Supply; Prices ; Nonrenewable Resources and Conservation: Demand and Supply; Prices ; Energy: Demand and Supply; Prices ; Electric Utilities ; Contingent Pricing; Futures Pricing; option pricing ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Thema: Financial risk management ; hedging ; futures markets ; electricity markets

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Spodniak, Petr ; Bertsch, Valentin
• Ereignis: Veröffentlichung
• (wer): The Economic and Social Research Institute (ESRI)
• (wo): Dublin
• (wann): 2017

Weitere Informationen

• Handle: http://hdl.handle.net/10419/174313
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ