Electricity Market Risk Premia: Evidences from Developing Power Exchanges in Central and Eastern Europe

This paper aims to investigate the adequacy of risk premium approach for developing power exchanges in Central and Eastern Europe, namely Power Exchange Central Europe and Polish Power Exchange. For the purposes of the research, we use data for base load and peak load month futures to calculate and analyze absolute and relative risk premia. Also the term-structure and time-evolution of the risk premium is assessed. Using a data set covering period of three years from introduction of futures contracts in to the trading schedule of chosen power exchanges, it was found that patterns of electricity risk premia at developing markets differs than one observed for developed ones.