The Iberian electricity market:Price dynamics and risk premium in an illiquid market
This paper studies the relationship between the electricity spot and futures prices in the Iberian electricity market, with a special focus on the ex-post risk premium of monthly futures contracts. The study covers the period from 1 July 2006 to 31 March 2017, during which 128 monthly futures contracts were traded. We show that the risk premium is dynamic and presents on average a negative value. Within contracts, the risk premium presents a non-linear dependence on the remaining trading days until maturity. There is no statistical evidence for rejecting the unbiased forward hypothesis of the futures prices. However, the sequence of futures prices near maturity has some predictive power on the risk premium.