How Big Is the Risk Premium in an Electricity Forward Price? Evidence from the Pacific Northwest

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.

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Year of publication:	2011
Authors:	DeBenedictis, Andrew ; Miller, David ; Moore, Jack ; Olson, Arne ; Woo, C.K.
Published in:	The Electricity Journal. - Elsevier, ISSN 1040-6190. - Vol. 24.2011, 3, p. 72-76
Publisher:	Elsevier

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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