Arbeitspapier

European Electricity and interrelated Futures Markets: A cointegrated Vector Autoregressive Analysis

This study investigates the price formation of electricity futures at the European Energy Exchange (EEX) and aims at understanding the price formation in connection with interrelated futures markets such as ARA coal at the Intercontinental Exchange (ICE), natural gas at the Title Transfer Exchange (TTF) and CO2 allowances. Results obtained from using a vector error correction model suggest that price formation in the futures markets for electricity can be explained to some extent fundamentally. Electricity futures price dynamics show dependency on marginal generation costs. A stable long-term equilibrium between electricity futures prices and marginal costs, namely prices of hard coal, natural gas and CO2 allowances could be found. An impulse response analysis reveals that in the longer run the electricity futures price converge to marginal costs of a hard coal power plant. This is useful information for electric utilities and regulatory bodies since futures markets serve several purposes for energy utilities, including price discovery, hedging, valuation and trading.

Language
Englisch

Bibliographic citation
Series: EWL Working Paper ; No. 05/12

Classification
Wirtschaft
Energy: General
Subject
Energy
Cointegration
Electricity Market
Futures Market

Event
Geistige Schöpfung
(who)
Fritz, Andreas
Event
Veröffentlichung
(who)
University of Duisburg-Essen, Chair for Management Science and Energy Economics
(where)
Essen
(when)
2012

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Fritz, Andreas
  • University of Duisburg-Essen, Chair for Management Science and Energy Economics

Time of origin

  • 2012

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