A feature of the electricity market is the trade with ongoing contracts, which can be used to insure a set electricity price in the future. As an example, in 2016 it is possible to trade forward contracts for each of the years 2017 to 2026.
This project investigated how accurate forward contracts are in terms of predicting the actual electricity prices in a given year. The project utilised data from 2005-2015, comparing the traded forward contract with the actual end of year prices.
The analysis showed a significant trade for the following year and the year after that, but very little trade for the subsequent years – consequently, it is not very effective at predicting the actual prices. Even during the last days of trading, it is often possible to see more than a 20% discrepancy between the traded price and the yearly result.
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