The increase of intermittent resource capacity in power generation has two main effects on the power prices. In one way the low variable costs of renewable energy generation and supporting incentives such as fixed feed-in tariffs and premiums resulted in lower wholesale market clearing prices. However next to this price suppressing effect the high volatility of wind power generation or other intermittent power sources resulted in more volatile day-ahead prices. Forward contracts are being used to hedge for price risk. The lower day-ahead power prices and increased volatility makes it relevant to analyze the effect of these on the behavior of risk premiums embedded in electricity forward prices. In this paper, we question to what extent a change in the day-ahead prices with respect to an increase of intermittent resources has an effect on the risk premia in forward power prices. To do so, we examine the day-ahead and the one-year to maturity forward power prices for the German market (EEX) from 2000 until 2014 with a Markov regime-switching model, the expectations model of Fama and French (1987) and the equilibrium model of Bessembinder and Lemmon (2002). We show that over the years the day-ahead price behavior has changed from more volatile positive price movement to more volatile negative price movements. The risk premium has reacted to this through becoming less volatile after 2008 in the short run and negative in the long run. German futures prices do contain information about expected changes in spot prices, but only shows evidence of risk premia in a time-varying manner. The percentage of risk premium embedded in the futures prices is not constant. With a higher level of electricity produced by wind and solar generation, which are 'imperfectly storable fuels' compared to 'perfectly storable' thermal fuels, such as gas and coal the futures prices should indeed contain more information about expected changes in spot prices than risk premia. However this is evident for the short term (Ml), but not for the long-term contract (Y1). The risk premia-increasing effects of spot price volatility and skewness are clearly visible in the short term.
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