Abstract
Market efficiency is analysed for the Iberian Power Futures Market and other European Power Markets, as well as other fuel markets through evaluation of ex-post Forward Risk Premium. The equilibrium price from compulsory call auctions for distribution companies within the framework of the Iberian Power Futures Market is not optimal for remuneration purposes as it seems to be slightly upward biased, though such a premium is not significant (only around 2% above the average of Settlement Prices). In the period considered (August 2006 to September 2008), monthly futures contracts behave similarly to quarterly contracts. Average risk premia have been positive in power and natural gas markets but negative in oil and coal markets. Different hypotheses are tested regarding increasing volatility with maturity and regarding Forward Risk Premium correlations (negative with variance of spot prices during delivery period and positive with skewness of spot prices during delivery period). Enlarged data sets are recommended for stronger test results. Energy markets tend to show limited levels of market efficiency. Regarding the emerging Iberian Power Futures Market, price efficiency is improved with market development and with further integration of European Regional Power Markets.
Highlights
Since its beginning in July 2006, the Iberian Power Futures Market managed by OMIP (“Iberian Forward Market Operator”), within the framework of the Iberian Electricity Market (MIBEL), has experienced a continuous development, in terms of number of participants and liquidity
And Quarterly contracts have similar Forward Risk Premium variation trends coinciding with alternant periods of positive Δex-post % or negative Δex-post %
Market efficiency is analysed for the Iberian Power Futures Markets and other European power markets (Powernext and Nord Pool) and fuel markets (Brent, NBP Natural Gas, and EEX ARA Coal) through evaluation of ex-post Forward Risk Premium
Summary
Since its beginning in July 2006, the Iberian Power Futures Market managed by OMIP (“Iberian Forward Market Operator”), within the framework of the Iberian Electricity Market (MIBEL), has experienced a continuous development, in terms of number of participants and liquidity. The Spanish Distribution Companies and the Portuguese Last Resort Supplier with more than 100.000 clients are obliged to purchase in these auctions, in order to partly cover their portfolios of end-user regulated supplies. Such an obligation comprises 5% of their regulated supplies, for the second half of year 2006, as agreed by MIBEL Council of Regulators in the Évora Summit (November 2005), and published in the corresponding legislation (Spanish Order ITC/2129/2006 and Portuguese “Portaria” 643/2006), and 10% for year 2007 onwards, as agreed in the Badajoz Summit (November 2006), and published in Spanish Order ITC/3990/2006 and Portuguese Dispatch 780/2007 (for first half of year 2007), Spanish Order ITC/1865/2007 and Portuguese Dispatch /2007 of 29 June 2007 (for second half of year 2007 and first half of year 2008), and Spanish Order ITC/1934/2008 and Portuguese Dispatch 19098/2008 (for second half of year 2008) (Fernández & Xiberta, 2007)
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