[en] This note investigates price differentials between electricity forwards and portfolios of short-term futures with identical delivery periods at the Nordic Power Exchange (Nord Pool). Since both contracts are traded at the same exchange, there is no influence of, for example, different market microstructure and default risk when examining the effect of the marking-to-market of futures on the price differential. Although the prices of the futures portfolios are, on average, below the corresponding forward prices, these price differentials are, on average, not statistically significant and not economically significant when taking transaction costs into account. Given the characteristics of the electricity contracts under observation, this is consistent with the predictions of the model and indicates efficient pricing in the Nord Pool forward market in contrast to previous results. (author)

[en] This note investigates price differentials between electricity forwards and portfolios of short-term futures with identical delivery periods at the Nordic Power Exchange (Nord Pool). Since both contracts are traded at the same exchange, there is no influence of, for example, different market microstructure and default risk when examining the effect of the marking-to-market of futures on the price differential. Although the prices of the futures portfolios are, on average, below the corresponding forward prices, these price differentials are, on average, not statistically significant and not economically significant when taking transaction costs into account. Given the characteristics of the electricity contracts under observation, this is consistent with the predictions of the model and indicates efficient pricing in the Nord Pool forward market in contrast to previous results.

[en] In electricity markets, not only does the risk of substantial price variations over time exist, but so does the risk of price variations over space, as prices between locations can differ due to transmission congestion. To manage this risk, Contracts for Difference (CfDs), i.e., forwards on the spread between a particular area price and the (unconstrained) system price, were introduced at the Scandinavian electricity exchange Nord Pool at the end of 2000. We empirically investigate the pricing of these CfDs over the period 2001 through 2006 and find that CfD prices contain significant risk premia. Their sign and magnitude, however, differ substantially between areas and delivery periods, because areas are subject to transmission congestion to a varying extent. While the relation between risk premia and time-to-maturity is not uniform for CfDs, there is a negative relation for implied area and system forwards, which can be explained by the relative hedging demand of market participants. In addition, we find that risk premia of CfDs and implied area forwards vary systematically with the variance and skewness of the underlying spot prices. This confirms both implications of the Bessembinder and Lemmon [Bessembinder, H., Lemmon, M.L., 2002. Equilibrium pricing and optimal hedging in electricity forward markets. Journal of Finance, 57, 1347-1382] model. (author)