How big Is the risk premium in an electricity forward price? Evidence from the Pacific Northwest

Andrew DEBENEDICTIS, David MILLER, Jack MOORE, Arne OLSON, Chi Keung WOO

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

The numerous benefits of electricity forward trading come at a cost to consumers when a forward price contains a risk premium. An analysis based on the theory of cross hedging suggests that there is a risk premium of about 5 percent in the forward price for delivery at the Mid-Columbia hub of the Pacific Northwest. The existence of a relatively large risk premium suggests that forward contract buyers are more risk-averse than sellers. Copyright © 2011 Elsevier Inc. All rights reserved.
Original languageEnglish
Pages (from-to)72-76
JournalElectricity Journal
Volume24
Issue number3
DOIs
Publication statusPublished - 2011

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Citation

DeBenedictis, A., Miller, D., Moore, J., Olson, A., & Woo, C. K. (2011). How big Is the risk premium in an electricity forward price? Evidence from the Pacific Northwest. The Electricity Journal, 24(3), 72-76. doi: 10.1016/j.tej.2011.02.011