SBS Finance Seminar - The hidden financial costs of intermittent power generation

Seminar

Date: Monday 3 April 2023

Time: 13.00 – 14.30

Location: Boardroom, Room 64 , 5th floor, House 2, Campus Albano

Sophie Moinas from Toulouse School of Business will present a paper titled "The hidden financial costs of intermittent power generation".

You can reach Sara Jonsson at 070-233 70 87 if you have difficulties finding the room.

If you are interested in talking to Sophie, you can reserve a slot here.   Please do so by Friday, March 31, at 13:00.

Read more about Sophie Moinas

 

Abstract

We investigate the hidden financial costs of the increase in the share of intermittent renewable power generation in the electricity production mix. Because electricity can not be stored, the prices of the electricity futures contracts that enable industry participants to hedge against potentially large variations in spot prices can not be determined by arbitrage.

We develop a model in which electricity retailers buy electricity from conventional and intermittent power generators to match final demand. At equilibrium, futures prices encompass a risk premium which sign and magnitude depend on the market participants' risk exposures.

We structurally estimate the parameters of the model using intraday limit order book data on the German/Austrian electricity day-ahead and futures markets (2013-2018). This enables us to propose a counterfactual analysis in which we vary the characteristics of the distribution of intermittent power generation. Our simulations suggest that an increase in the share of intermittent renewable power generation or its volatility raise non-diversifiable risks, resulting in an increase in the risk premium.