Essay 1, Constrained Capacity and Equilibrium Forward Premia in Electricity Markets, develops a refinement of the equilibrium electricity pricing model in Bessembinder and Lemmon (2002). The refined model explicitly accounts for constrained capacity, an important feature in electricity markets. Explicitly including a role for capacity allows the model to reproduce the price spikes observed in wholesale electricity markets. The refined model implies that the equilibrium forward premium, defined to be the forward price minus the expected spot price, is decreasing in spot price variance when the expected spot electricity price is low…
Author: Ullrich, Carl
Source: University of Maryland
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