Electricity futures risk premiums reveal seasonal patterns and predict future returns.
The article examines how supply and demand affect risk premiums in electricity markets using data from 2003-2014. The model used fits well and accounts for economic risks not reflected in futures prices. Risk premiums in electricity futures are typically large, negative, and vary over time. They follow seasonal patterns, are linked to spot price variance and skewness, and can predict future returns. The risk premium from supply is the biggest part of the total risk premium in electricity futures.