Explaining electricity forward premiums: Evidence for the weather uncertainty effect

Arbeitspapier

With the increasing share of volatile renewable energies, weather prediction becomes more important to electricity markets. The weather-driven uncertainty of renewable forecast errors could have price increasing impacts. This research sets up an analytic model to show that the day-ahead optimal bidding under uncertain renewable production is below the expected production and thus price increasing. In a second step, the price increasing effect on forward premiums by specific weather types and their renewable production uncertainty is proved via empirical methods. Weather types are identified in which renewable production is harder to predict. The findings connect weather dependent renewable forecast uncertainty to forward premiums and support the consideration of weather types in price forecasting models.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: EWI Working Paper ; No. 17/10

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Firm Behavior: Empirical Analysis ; Market Structure, Pricing, and Design: Perfect Competition ; Criteria for Decision-Making under Risk and Uncertainty ; Energy; Environment ; Energy: Demand and Supply; Prices ; Alternative Energy Sources ; Energy Forecasting
• Subject: Forward premium ; Weather type ; Uncertainty ; Volatile renewable production

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Obermüller, Frank
• Event: Veröffentlichung
• (who): Institute of Energy Economics at the University of Cologne (EWI)
• (where): Köln
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/172840
• Last update: 10.03.2025, 11:42 AM CET