Research On Functions Of Electricity Futures Market

As an advanced form of electric power market, electricity futures market has the functions of price discovery and risk aversion, which may help resolve the problems of investment guidance and risk control of electric power market. So far, the electric power markets of many countries and regions, including Nord Pool, PJM, UK, Australia, etc, have already introduced the trade of electricity futures.This thesis, starting with the basic theory of electricity futures, focuses on analyzing the differences between electricity futures and ordinary commodities futures, as well as the difficulties and problems that may be encountered by introducing electricity futures trading. The solutions to these difficulties and problems are analyzed, based on the operating experience of foreign electricity futures market. By the empirical research on the Nordic electricity financial market, it can be found that there exits a long-term equilibrium relation between the electricity futures and spot prices, and the causality from the futures market to the spot market is much more significant. The futures market plays a leading role in the price discovery. With the right hedging ratio, the variance of portfolio of electricity futures and spot will be significantly smaller than that of electricity spot. So the risk aversion function can be achieved by hedging with electricity futures.This thesis will also put forward some specific recommendations to the introduction of electricity futures trading, referring to the development status of the electric power market in China.