Commodities Now: Negative prices in electricity markets

20 July 2004

Commodities Now

Publication about negative power prices by Cyriel de Jong (2003).

Negative prices in electricity markets

logo In this paper we describe how liberalisation has lead to the segmentation of trading opportunities for electricity with different periods to delivery. We clarify the price characteristics in each segment, including the extreme volatility in short-term prices and the phenomenon that electricity prices can become negative close to the time of delivery. With the Dutch market as an example, we show the implications for risk management and the valuation of derivatives. We argue that a distinct price model is required for risk management and derivative valuation in each market segment. Derivative valuation goes beyond the financial contract itself and can be very useful for taking strategic decisions on flexible generation assets.

negative-power-prices-eex-dec-2012

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