Risk premiums in electricity forward prices — data from the ISO New England Market

Abstract

We document the forward premiums in the ISO New England wholesale electricity market, measured by the difference between the hourly day-ahead and real-time prices. Following Longstaff and Wang (2004), we show how these premiums are related to the variance and skewness of the real-time price distribution and how the premiums vary conditionally to reflect the varying uncertainty in the real-time price.